SPX Breakout Fails as Financials, Interest Rates Drop...

The SPX formed a bearish engulfing and closed -30.65 at 1,314.65 reversing Tuesday’s break out of the falling resistance line and falling back into its price channel or complex bull flag of the past four weeks. 

Interest rates dropped as the TNX -0.84 to 2.966%, closing at its lowest level since December 6, 2010.  Financials XLF -3.38% broke support in a classic bear flag break reaching its support and more in one day.

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Bond ETF TLT moved up 95 cents.  The Euro moved down 66 pips to 1.4333 at 5 pm on Wednesday.

The SPX, INDU, COMPQ, NDX and RUT all broke and closed below their 30 DMA today, which confirms the strength of today’s downward momentum.

The SPY -2.25% formed an open gap bearish engulfing and broke below its falling support line of its four week complex bull flag and has a new price target of its old support at 131.

Wednesday’s action emphasizes what I constantly teach about technical analysis being based on probabilities and that it can only reflect what is known in the market up to the present.  It cannot see the future.  Clearly Tuesday’s net buying did NOT know interest rates and financials would collapse on Wednesday reversing Tuesday’s breakout and more.  If it did sellers would have had control on Tuesday.

This is also why I teach you to have stops and to honor entry and exit signals to protect you when the low probability occurs.  On many charts Wednesday’s action broke the low of the high and was a potential short-term exit on bullish trades and a potential short-term entry for bearish trades, depending entirely on a trader’s rules.

You may remember that AAPL real time virtual trade that I placed in a Monday night trading session on May 23.  The order was to buy 20 Jun 340 calls if AAPL rose above 336.98 for at limit of 6.70.  The order filled on May 25 at 5.55 per contract.  We also placed a market order to sell if AAPL reached 351.00, its prior consolidation area.  The target sell order filled today at 7:47:07 am MDT before AAPL reversed and closed at 345.51.  The 340 calls sold for 13.62, a gain of $8.07 or 145% in 7 trading days.  Total gain before commissions was $16,140 on an original investment of $11,100.    

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SPX bearish engulfing, close below 30 DMA -2.28%

INDU bearish engulfing, close below 30 DMA -2.22%

COMPQ open gap bearish engulfing, close below 30 DMA -2.33%

RUT open gap bearish engulfing, close below 30 DMA -3.17%

Breadth collapsed as decliners led advancers 4.47 to 1 on the NYSE and 5.12 to 1 on the NASDAQ …

Exchange       NYSE        NASDAQ

Advancers         557               430

Decliners        2,495            2,202

Index              Chg.    Close    Direction    Confirmation

VIX                 +2.85     18.30      Up               Yes – SPX

SOX              -13.32   426.28      Down           Yes – COMPQ

Leading stocks > +2% on Wednesday included FAZ, ESI

Losing stocks < -2.0% included JNPR, FAS, LDK, STI, TSL, URE, MCP, ARUN, AKS, SNDK, JDSU, UCO, CIEN, X, SWK, CDE, F, NVDA, VECO, FCX, CAT, FWLT, ENTR, CRM, BAC, SWN, CREE, NDAQ, UNP, DE, DHR, WDC, A, CF, FFIV, ZION, CAM, SWKS, UAL, CRUS, ICE, POT, ATW, CY, GS, MOS, SMH, CLF, HLF, TPX, TIF, GMCR, ATI, SLB, DECK, AGU, DOW, TBT, KKD, IAG, PCX, ANR, GES, V, SLW, GLW, COH

Positives – TLT

Negatives – TNX, SPX, VIX, INDU, RUT, COMPQ, NDX, breadth and sectors weakened, XLF, SOX, AMZN, BIDU, QCOM and Euro

All nine sectors moved lower on Wednesday.  Consumer Staples XLP -1.02% and Utilities XLU -1.03% were the strongest sectors.

SPX

Resistance: 1,321, 1,330,1,344

Support:  1,310

The short term 3 day trend is down.

The six-month trend is up.

The twelve-month trend is up.

Trade with the trend of the chart you are trading.

Bullish entry signal is a bounce off support and a break above the high of the low day or a break out of horizontal resistance.

Bearish entry signal is a break of short term support or a bounce down from the 30 DMA or other resistance.

AAPL -2.32 – dark cloud cover, above 30 DMA

AMZN -4.29 – large black candle, close below 30 DMA

BIDU -3.24 – black candle, below 30 DMA

GOOG -3.42 – bearish harami, below 30 DMA

NFLX -3.54 – bearish harami, above 30 DMA

PCLN -8.13 – bearish harami, below 30 DMA

QCOM -1.43 – open gap bearish engulfing, above 30 DMA

NDX 100 stocks stronger than the NDX include APOL, ALXN, CHKP, ILMN, CTRP, ERTS, CEPH, GRMN and INFY.

Stocks weaker than the NDX include MU, RIMM, AMAT, SNDK, PCAR, FAST, NVDA, YHOO, KLAC, JOYG, ORCL, NWSA, SHLD, FFIV and FSLR.

Stocks to Watch on Thursday

Holding Above 30 DMA

HUM, TPX, HLF, ANF, DLR, TIF, COH, TLT, CY, FFIV, VECO, UAL, GMCR, KKD, RVBD, FAZ, ACN, CMG, VMW, CF, CREE, INFA, CRM, IAG, NGLS, V, GES, NVDA, POT, AGU ANR, CHL, UNG, WTW

Moving Above 30 DMA = 0

Moving Below 30 DMA = 20

A, AKS, ATW, CLF, CRUS, CSTR, DECK, DHR, ENTR, FCX, FWLT, ICE, SLB, SMH, SNDK, STI, SWN, UNP, URE, ZION

Staying Below 30 DMA

UAL, ESI, MHS, HAS, JDSU, JNPR, SWK, ARUN, GLW, ATI, CIEN,  DOW, F, CAT, IL, NDAQ, SWKS, WDC, MCP, SINA, WLT, FAS, LVS, SOHU, UCO, DE, NETL, PCX, LDK, TSL, NTES, SLW, GS, CDE, TBT, MOS, X, CAM, BAC

Intermediate Term Market Trend: Up

Short Term Market Trend: Neutral