After what seemed like an eternity channeling between 1,680-1,700 the S&P500 finally broke down, gapping below the 1,680 range that had held support since July 29th. The move lower doesn’t yet jeopardize the 4&1/2 year long bull market, but it does put the immediate term bias in favor of the bears. Key support is 1,650 and also where ever today’s low ends up being. Resistance now becomes previous support at 1,676 and 1,682-1,685.
Yesterday I wrote that some leading stocks like GOOG, AMZN, FB, PCLN and others were starting to signal that the market might be on the verge of a breakdown. Obviously with today’s sell off, tracking those stocks movements looks to have been a smart strategy. Therefore, I’ll be keeping an eye on those same ones (particularly GOOG & some banks) in trying to determine when the market might be ready to resume its uptrend. In addition I’ll be taking that information in accordance with where the market is at, like 1,650 support or 1,676 resistance etc.
In regards to GOOG, the stock broke below its June 24th low of $863.25 low today but that didn’t result in a momentous breakdown. GOOG has been a clear leader in the NASDAQ as it has the best year-to-date return of any stock with a market cap of its size. $875 was key support on GOOG so watch to see if that price starts acting as resistance on any bounce attempts. On the support side, GOOG’s Summer low around $847. If SPX holds 1,650 I don’t expect you see GOOG below $847. A break below 1,650 though or a $847 in GOOG and that would signal to me that the market is heading lower and the overall uptrend on the year would be in trouble. Other tech stocks deserve attention but GOOG is the one that deserves the most.
The other sector that is super important to the stability of the market is the banks (XLF). XLF, in true leadership fashion, failed to make a higher high with the market in early August and actually broke to a lower low this past week vs its late July lows. While I’m not much of a moving average fan, I do acknowledge that a low of people are probably watching to see if XLF can hold onto its 50 day sma, which it is testing today (50day sma is @ $20.06). During the June pullback, XLF failed to close back-to-back red days below that average and the lone red day it spent completely below it (6/24) ended up being the day the SPX bottomed out. XLF needs to reclaim $20.50 before I’ll feel good about banks taking on a leadership role to the upside again.
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