As we approach Thanksgiving we would like to remind our readers that last time we had a festive weekend coming up was late October and Halloween. This was right around when the equity markets decided to make a local low and put in a short-term violent bounce. On October 31 we wrote:
The following weeks were followed by a massive rally in equities and a subsequent fall in volatilities. It all lasted until we hit the upper part of the Bollinger bands that we pointed out to our readers. In our post “What’s next after the Bounce?” we wrote that all corrections from 2009 had the same DNA:
- The first part of the correction has been rather quick taking the index down by 12-14%
- The subsequent bounce reached the upper part of the Bollinger band
- The next move down revisited the recent local low and in a few instances the index briefly made new local lows
This is how it looked in 2010 as one example. Note the test of the Bollinger Bands during the bounce and then the new sell-off.
The below chart, from Nov 8th, shows the bounce during this recent market turmoil. In retrospect that was a perfect reversal and all markets have sold off since that reversal on the Bollinger Bands.
What about now?
SPX broke below the 2700 level yesterday. The big level to the downside is the recent low close at 2631 and then the big 2600 level. Resistance is at 2750, the 200-day average at 2765 and then the big 2800. Note the 50- and 100-day average having crossed a few weeks ago.
NASDAQ continues to be the relative dog as the FAANG space continues imploding. The index trades well below all major moving averages and the momentum is definitely stronger to the downside. There is a longer-term trend from 2016 around the 6500 level (futures) that would be a first support area to start watching. Strong down momentum like we have seen do not end quickly.
Our “thesis” around Apple, according to us still the most important name is that the stock needs to come down to the longer-term trend slightly above the 180 level. If and when it reaches this level we need to observe it closely, because, without Apple, NASDAQ is not going higher.
With regards to European indices, we have the Eurostoxx 50 trading down and closing in on the big 3100 support. This is a make or break level. Note the red trend line being the resistance, as well as the big 3200 level.
Germany’s DAX continues struggling. The index is down to late October lows and trades awfully bad. 11k is huge and a must hold level. First bigger resistance at 11 500.
Source: charts by Bloomberg
Since 2009 all corrections have looked the same, the only question here is whether recent lows will hold or if we are going to trade below them, only to make things even more hard for the crowd.