Today's price action was a little volatile following this morning's pop n drop but it's become part of the choppy price action we've seen for the past two weeks. Bulls are trying to hold onto gains into month-end while bears are trying to take that away from them.

Today's Market Stats

The daily battle between the bulls and bears continues as overnight futures gap the market up in the morning and then sellers take advantage of the early-morning liquidity rush to sell into the rally. Rinse and repeat. The Dow swung back to positive while the techs swung to negative, which is a continuation of the sloshing back and forth between sectors while the market in general stagnates. We continue to wait for a move in one direction or the other.

Equity futures had rallied fairly hard last night and ES (SPX emini futures contract) was up +8 by the time the cash market opened this morning and then quickly spiked another +5 points before the sellers smacked the indexes back down. SPX spiked up about 12 points before quickly dropping back down to close this morning's gap. It then proceeded to trade in a 7-point range the rest of the day.

As has been typical with this market, all the excitement was over in the first 90 minutes of trading (30 minutes longer than usual) and the rest of the day was spent going sideways. The net result is a short-term pattern that supports the opinions of both sides as to where this market will head next. Further confusing things, the different indexes are not in agreement with their different price patterns and we need to consider both possibilities for this week.

This week is generally bullish since we could see an attempt to mark up the indexes into month/quarter-end. We also tend to see a rally into a holiday weekend, which is what we have next weekend. Therefore the bulls have all that going for them and the bears are hardly in a strong position as the indexes hang up around their highs. But as I'll show on the charts, the threat of a breakdown is real and Tuesday's trading could set the tone for the rest of the week.

There was very little to drive the market this morning and even though the pre-market Durable Goods orders report was more negative than expected it was basically ignored. The number came in at -1.1% for May, down from -0.9% in April, which had been revised lower from the previously reported -0.7%. Ex-transportation, durable goods was a little better, coming in at +0.1%, which was an improvement from -0.5% in April but still not as good as the +0.3% that was expected. Further signs of a slowing economy and eventually, if the trend continues, the market will start to recognize it.

Kicking off tonight's chart review, the Dow has been one of the indexes that keeps me thinking a new high is possible, although I'm starting to lose faith in its ability to do it.


Dow Industrials, INDU, Weekly chart

The Dow's weekly chart keeps me looking higher while the shorter-term charts suggest it might not be able to get another leg higher. A trend line along the highs from December 2014 - May 2017, which may or may not be important (it hasn't been tested yet), is currently near 21675 and it looks like a good upside target on the weekly chart. The problem for the bulls is that the buying momentum has slowed significantly (bearish divergence against the March high) and the market could simply be running out of buyers to propel the market higher.


Dow Industrials, INDU, Daily chart

Back on May 17th the Dow spiked down below its uptrend line from November-April but then climbed back above the line 3 days later. Since May 23rd it had used the trend line for support as it slowly marched its way higher into the June 20th high. It wasn't a strong break back below the line but last week's decline into Friday had the Dow closing below the line for the first time in a month.

Today the Dow climbed back up above the line, currently near 21435 (using the arithmetic price scale), and it's looking like the bulls could get another save if today's close on the line is followed by a rally on Tuesday. As long as this trend line holds as support we should see the Dow work its way higher, in which case the upside potential is to at least the price projection at 21618, where it would also run into two trend lines along the highs from 2011-2014 and April-June.

Key Levels for DOW:
- bullish above 21,535
- bearish below 21,169


S&P 500, SPX, Daily chart

SPX has been in a choppy pattern since its June 2nd high at 2440 and today's close at 2339 shows it hasn't made much progress in either direction this month. The price action looks "toppy" but until it breaks down below the June 15th low at 2418 I'll give the bulls the benefit of the doubt and look for the possibility of a rally up to a price projection at 2465 (to coincide with the Dow's 21618).

However, the short-term pattern following the June 19th high near 2454 suggests the top might already be in and short against that high is the better position. For that to be true we should see selling on Tuesday and a break below the 20-dma, currently near 2434. Tuesday is turning into a potentially key day -- its direction could set the tone for the rest of the week/month/quarter.

Key Levels for SPX:
- bullish above 2454
- bearish below 2418


Nasdaq Composite index, COMPQ, Daily chart

Drawing a trend line along the highs from April 2016 to March 2017 for the Nasdaq shows the rallies in May were repeatedly stopped by the trend line. Then the Naz made a bullish move June 1st and 2nd and climbed above the trend line. But that accomplishment was short-lived as the June 9th hard selloff dropped the Naz back below the line. Today it finally made it back up to the line, now near 6317, and we're watching to see if it remains resistance.

As the Nasdaq did in May, it could continue to work its way higher by nuzzling up underneath the trend line but if the bearish divergence continues to hold while working its way higher it would be a signal that longs are not long for the world and bears should get ready. That includes right here -- tight stops on long positions and get ready to play the short side if today's back-test is followed by a bigger red candle.

Key Levels for COMPQ:
- bullish above 6342
- bearish below 6107


Nasdaq-100, NDX, 30-min chart

From a short-term perspective there was a pattern that I was watching on NDX that pointed to the need for just one more new high today to complete a rising wedge pattern for the leg up from June 15th. This was to complete the c-wave of an a-b-c bounce off the June 12th low and this morning's new high at 5845, which tagged the 78.6% retracement of its June 9-12 decline, was a good setup for a high.

The pop up in the morning was a throw-over above the top of the wedge and the collapse back down inside the pattern created the sell signal. The bounce off this morning's low could get a little larger (to mimic the big bounce off the June 12th low) but short against this morning's high is the recommended play based on this bearish setup. It would of course be negated with a rally above this morning's 5845 high.


Russell-2000, RUT, Daily chart

As long as the RUT continues to chop up and down between its uptrend line from February-November 2016, now near 1381, and its trend line along the highs from 2007-2015, near 1437, there are very few clues as to where it's going next. I could easily argue for another test of its 2007-2015 trend line, maybe a little higher, and I could just as easily argue the case for at least another leg down from here, one that could break its uptrend line. In other words, the RUT is about as useful as teats on a bull as far as trying to figure out its next move. I lean bearish but the short-term pattern keeps the upside potential alive.

Key Levels for RUT:
- bullish above 1440
- bearish below 1386


10-year Yield, TNX, Daily chart

Treasury yields dropped back down today, supposedly on more concerns about a slowing economy (following this morning's durable goods report). This morning's low for TNX was another test of support at its November 10, 2016 close at 2.117, which was last tested on June 14th (it's the week's closing price and the bottom of the November 14th gap up). A break of that support level would be more bearish (bullish for bond prices) but at the moment it's hinting it could break out of a bullish descending wedge from the May 11th high, currently near today's high at 2.147.

A rally above price-level S/R at 2.19 would turn things a least short-term bullish but a continued decline to the bottom of the wedge, near 2.05, can't be ruled out. And there's still the downside projection near 2.00 based on the double-top pattern. The longer-dated bonds, the 30-year (TYX) is looking more bearish and that's the market that suggests inflation is not a concern and that the economy is not improving.


KBW Bank index, BKX, Daily chart

Follow the money. The banks don't always show the way but it's always a good idea to keep an eye on them to see if they're in synch or not with the broader market. They've been weaker than the broader market since March and that's been a warning sign but if they can rally from here it would support at least another new high for the broader averages.

BKX has been trying to hold support on a pullback to its 20- and 50-dma's, near 92 and 91.60, resp. The uptrend line from June 2016 - May 2017 and the trend line along the highs from April 2010 - July 2015 cross on Tuesday near 90.90 and therefore a break of support at its MAs and the trend lines would obviously be more bearish. But MACD could be getting ready to turn back up from the zero line, which would be bullish.


U.S. Dollar contract, DX, Daily chart

Since the low for the US$ on May 22nd it has been chopping sideways and that has it looking like a bearish continuation pattern. A weaker dollar is further evidence that the currency market doesn't think the Fed will be able to raise rates like they want because the economy is cooling off. Assuming we're going to get another leg down for the dollar, the price projection at 94.79 remains a good target.

The 94.79 projection crosses the bottom of a parallel down-channel, starting from January, around mid-July. A short-term bounce can't be ruled out but it wouldn't be more bullish unless it can get above it descending 50-dma and a broken trend line along the lows from last December through March (gray line), both currently near 97.98.


Gold continuous contract, GC, Daily chart

Early this morning, around 4:00, gold dropped sharply after finishing a 3-wave bounce correction off its June 21st low. It pierced its 200-dma but held it as support, as it did last week, and it's possible it will get at least a larger bounce before heading lower. But it closed today below its uptrend line from December-May, currently near 1248, and today's consolidation following the morning low looks like a bearish continuation pattern. A continuation lower from here would clearly be more bearish since it will have broken below multiple layers of support (MAs and trend lines). Gold bulls need to step back in right now if they want to save their "precious" metal.


Oil continuous contract, CL, Daily chart

Off last Wednesday's low oil made it back up to the top of its narrow down-channel for its decline from May 25th. Eventually it's going to break of this narrow down-channel and start at least a bigger bounce correction, possibly something more bullish. But the bulls will have to wrestle the ball away from the bears since they own it after oil dropped below its uptrend line from August 2016 - May 2017, which is currently near 44.75. If oil makes it back up to that trend line, for what could turn into a bearish back-test, it would likely meet up with its quickly descending 20-dma. Above 45 would be the first bullish sign but for the moment there is downside potential to the $40 area.


Economic reports

Tuesday is light on economic reports with only the Shiller Home Price index and Consumer Confidence and no significant changes expected. Wednesday we'll see if the housing sector continues to improve after we get the Pending Home sales number. Thursday's GDP 3rd estimate and Friday's Personal Income/Spending numbers for May will shed more light on the balance between the two. PCE prices (a measure of inflation) will be an indication of what the Fed will use for the data-dependent decision making. The Chicago PMI and Michigan Sentiment will finish Friday's reports. All in all, nothing earth shattering is expected and that could help the bulls at least keep the sellers away this week.


Conclusion

The price patterns for the blue chips had been keeping me on the bullish side of things the past several weeks but after last week I'm not so sure about new highs. The techs had set up a pattern for the bounce off the June 12th lows that suggested it was going to be just a bounce correction to a lower high and then a turn back down into harder selling. That remains the greater likelihood in my opinion, which further weakens the idea that we'll get new highs for the blue chips. The RUT is just flopping around like a fish pulled out of the water.

This is a week that is typically bullish since it's the end of the month/quarter and it's common for fund managers to mark up the prices as much as possible to show what good investment managers they are. Then puke the positions next week. But it's been a good quarter and many fund managers might be more interested in protecting gains if they see the market weaken at all.

We also often see the market rally into a holiday weekend, which is this coming weekend, and the combination of a mark-up effort with the holiday could be too much for the bears to overpower. The price patterns are favoring the bears at the moment but that could be turned around in a hurry, especially if we get a rally on Tuesday that holds up (no selling of rallies like this morning). Any further selling on Tuesday would likely get those fund managers starting to protect their gains.

Good luck and I'll be back with you next week on my normally scheduled Wednesday. See below for a good deal on an OIN subscription.

Keene H. Little, CMT


 

INDEPENDENCE DAY SPECIAL!

Welcome to our mid-year Independence Day Subscription Special. Save 50% or more on your subscription!

The options market isn’t waiting for you.  And you shouldn’t wait to keep Option Investor coming at the lowest prices you’ll see until December! There isn’t a minute to spare.  Order now.

Renew for as little as $249
for six months,
ONLY $1.38 per day