State of the Market Sept 21 2020


SPY: The SPY has broken down out of the long term rising channel and now is in a down trend. It is quite evident with the hourly chart for the SPY. From the 3587 high, the index made a 5 wave pattern down to 3310. Then it made a three wave corrective move up to resistance at 3430. It now looks to be in wave three to the down side. It has made a 4 wave move inside wave 3. If the analysis is accurate then the next wave inside wave three should take us down to support 3272. If it fails support there next support is around 3237. Overhead resistance is now 3390 and 3430. I am already long the bear ETFs for SPY and NDX and if it breaks below 3272 I will look to add.


NDX: The NDX has the same hourly chart pattern as the SPY. It looks to have started wave 3 to the downside after a massive move up from the March Bear market low. We don't know if this is a 3 wave corrective in a larger pattern or the start of a substantial move to the downside. It has some support at 10855 with bigger support around 10500. Through that level and 10300 and 9735 are targets to the down side. Overhead resistance at 11280 and 11566.


DOW: The DOW has broken below the rising channel line and is right at support at 27490 area. If it fails to hold that level look for a move down to 27000, 26500 and 26000. Overhead resistance at 28500. Through that and look for a trade back to 29500.


DJ Transportation: The Trannies made a nominal all time high before pulling back. It does remain in a strong rising channel. If it fails at 11360 area it could trade down to 11000 and signal lower markets. But if it breaks out to new highs, then I would see the pull back in SPY and NDX as mere corrections in the overall secular bull market.


IWM: The ETF for the Russell 2000 does remain in a rising channel and near the apex of a wedge pattern. It double topped at $160 and failed to hold support at $153.50. Key support at $159.75. Failure there and I think that is a break down in the ETF. Support at $145 and $136.50. If it remains in the rising channel and breaks over $160 then we could see it trade to ATHs at $170 area.


FAS: The financial sector ETF does remain in a slow rising channel but continues to test $35 support. Failure there and I will look to trade FAZ as it would be a break down in the sector. Targets $30 and $25. If it holds then $40.50 and $43.50 are resistance areas.


LABU: After breaking out over the $62 resistance it looked like LABU was ready to go. But is failed and started a down trending channel shedding $35 from the high (~50%). In early September it spiked down to $40 and bounced. From there it has made a 50% retracement back to $62. If it breaks through $62 it could trade to $70. Failure at this resistance level look for a pull back to $55 and $50.


SMH: The ETF for semiconductors looks like the SPY and NDX chart. It is near the apex of a wedge pattern. Failure at $165 and we should see a pull back to $158 and then $152. If it does hold and trades over $175 look for a move back to ATHs at $185.


OIL: The price of oil remains strong trading over $40 but the oil stocks continue to sell off. GUSH is in a falling wedge pattern. It has reversed into a bear flag the last week and approaches resistance at $30. If it can get through $30 then $35 and $40 would be targets. Failure at $30 and it trades back down to $20.


GOLD: Gold remains strong and is holding the rising channel line. Targets for gold are $2200 and $2400 as governments continue to print money at a rapid base. If NUGT fails the $93 level. it could trade down to support around $85. But at the apex of the wedge, if it trades up then $110 and $115 are targets.


Technical indicators: In general, the technical indicators are neutral. Only 43.5% of stocks are above their 40 day moving average. The McClellan Oscillator has a reading of -39.85. So there is not broad participation in the market. The divergence is with the VIX. You would think if markets were going to head lower then the VIX (and UVXY) would be surging to the upside. But they also remains neutral. In fact as $SPY and $NDX were heading lower, so was VIX. For the bulls, the hope is that the current move is merely a correction. We are at a critical juncture and should know this week.