The market started out weak and remained weak all day long. Once again the bears succeeded in taking out another level of support with the S&P closing at 1304 with 1300 now a key level of support. We’ve now got stochastics near 0 and the RSI on the S&P is at 25, almost guaranteeing a bounce at any moment. But, make no mistake about it, the bears are in total charge here, so any bounce could be short lived.
The market started out with promise on Wednesday but as has been the case lately, the bulls were unable to hold the upper hand. Instead, in spite of extreme oversold conditions, the bears were able to take control of the action late in the day, with the S&P moving below yet another level of support at 1326 and closing at 1324. Next up will be 1312 if the bears have their way. The reward to risk remains to the upside here, but try telling that to the bears.
We knew the S&P would struggle if it closed below 1340, and that’s exactly what happened on Tuesday as the bears kept their grip on the market. Now the bulls will be tasked with holding the line at 1326 on the S&P. Should that go, 1312 would be next. To the upside the bulls need to work extra hard to try to recapture 1369, the 20 day moving average on the S&P, if they want to try to turn things around here. We’re very oversold here, so a bounce is certainly a possibility, and wouldn’t surprise us one bit.
We’ve talked a lot lately about the bulls needing to hold the line at 1340 on the S&P and they failed to do so on Monday. Instead, the S&P closed at 1338, with 1326 now becoming the next key level of support. We’re going to get a lot of economic news this morning including retail sales along with earnings reports from some large retailers. We’ll also get a key manufacturing report, so depending on market reaction, we could either continue the march lower or turn things around here. The market is certainly oversold here but trying telling that to the bears who are looking for more blood.
Jamie Dimon, JP Morgan‘s outspoken CEO, has finally gotten at least a small taste of what it feels like to eat humble pie. Dimon has gone out of his way ever since taxpayers bailed out the big banks to say JP Morgan should never have been lumped in with the rest of the financial community since it had its act together above all others. Not so.
Instead, as everyone knows by now, JP Morgan has just announced it will be taking some heavy trading losses, so Dimon’s assertion that JPM was the cream of the crop no longer holds water. In fact, it could end up being the irony of all ironies if, because of JPM’s actions, all banks are finally subject to additional scrutiny, including the Volcker rule, that Dimon has publicly slammed.
To refresh here, the Volcker rule, named after former United States Federal Reserve Chairman Paul Volcker, was introduced as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The whole idea was to prevent taxpayer backed banks like JPM from making speculative bets that are not beneficial to their customers. So, the fact that Dimon has been so vocally opposed to the rule makes him look foolish after this latest incident.
Not only does it make Dimon look foolish, but it has already cost one high level executive, Ina Drew, her job and you can bet there will be more to follow. The big question then becomes; will Dimon himself be forced out? For certain, he has been one of the shining stars in an industry fraught with trouble, but the current foibles at JPM point out that even the “best of the best” aren’t really able to keep a tab on all that goes on in such a large financial institution. This is fodder for all of the anti-bank and Wall Street folks who have felt shafted by the banks every since they were bailed out back in 2008.
Of course, like most other bank debacles, this will likely pass as well, with JPM going on business as usual. However, there is a scenario where the political winds just might be strong enough for something to actually come out of the Volcker rule. This could have the effect of making it more difficult for banks like JPM to place such risky bets with customer money.
No matter what happens from here, there’s one thing you can be absolutely sure of; this won’t be the last time we hear of such large trading losses. It’s the nature of the beast, and as long as banks are making big bets, there will be big losses. The minimum we should do then is to make bank executives like Dimon suffer the consequences if losses occur under their watch.
The bulls had no shot to take control early on Friday with JP Morgan‘s bombshell news of trading losses the night before. The S&P got hit right out of the chute but recovered a good chunk of the losses by day’s end, still closing down at 1353. The market continues to struggle here and has been ever since the 20 day moving average on the S&P crossed below the 50 day, and now that gap is widening some. If we get more selling here, it will be critical that the bulls hold 1340, and so far, that has been the case.
Market seems sending mixed signals. At times like that I like to zoom out to a longer term to see a “bigger picture”.
For this week I chose EEM not that it is of any specific situation. Many ETFs are forming very similar patterns.
Step one – zoom out to a monthly view:
I am trying to predict a pattern before it is solid. On this chart I am looking at major reversal points and their volume. Here volume confirms the bounces from the lower range of what I am guessing might be forming. Volume at rejection points (upper range) was not significant, but MACD cooperated.
Step two – zoom in to a weekly view:
I am trying to zoom in on the possible pattern. It seems in tact. Here also volume confirms the bounces. Rejections are also in harmony with MACD. As you can see the same support/resistance level at $44 is visible with more detail points of crossing over/under.
Step three – zoom in to a daily view:
I am looking for a possible next move. EEM has been rejected four times from the upper level of down sloping channel. It doesn’t mean that this channel is “hardcoded” somehow in the memory of the market but it is quite possible that many traders are watching it and trading accordingly. The current price is in a significant distance from the upper level and a bounce from the lower range of the down sloping channel is of high probability.
There is of course no guarantee that EEM will bounce soon. The weekly chart still shows some room to the downside before next significant support.
Eva
The bulls wanted badly to take back the momentum and early in the day on Thursday the market was cooperating. However, as the day progressed, traders decided to unload positions and by the time the market closed the S&P had only gained a few points, not exactly a turnaround day. After the bell Thursday, JP Morgan announced surprising losses which will weigh on Friday’s action, as the market will be tested. Key support on the S&P remains at 1340, so let’s see if that holds.
The bears continued to pound away Wednesday with the bulls mostly defenseless. The S&P got as low as 1343 before bouncing with the market closing at 1354. The 1340 level is now critical support that must be held or we’re going lower. The market remains broken here and unless the S&P can recapture its 20 and 50 day moving averages, the bears will continue to have the edge. So, was that move on Wednesday to 1343 a near term bottom? Might be, so at least stay alert to possible new opportunities, but be ready to remain defensive if that 1340 level goes.
The bears continued to control the action on Tuesday, with the market starting down sharply. The S&P easily cut through support at 1357, getting as low as 1347 before recovering some by day’s end. Technically the market remains in trouble, with 1340 a key level of support. Unless the bulls can recapture 1386, the market will continue to struggle.
