2400 In Store for the SPX?

Further to my post of October 21, the U.S. Homebuilders ETF (XHB) decline continues. Price is now sitting just beneath its long-term 38.2% Fibonacci retracement level of 32.33, which had represented a first major support level (now major resistance). Second major support level (50% Fib retracement) sits at 27.60.

The following weekly comparison chart shows price action of the SPX (green bars), XLF (pink) and XHB (blue) pre and post-2008/09 financial crisis.

You'll note that the XHB entered into a steep decline well ahead of the SPX and XLF in mid-2006...which was a strong indicator of major weakness in that sector and a precursor and barometer of systemic weakness in U.S. equities, in general.

Conversely, it began to accelerate at a faster pace in mid-2012 before it moved lock-step with the other two until they all peaked in January of this year.

All three, subsequently, pulled back, but while the SPX then rallied to new highs, the XLF and, in particular, the XHB did not. In fact the XHB has declined at an alarming rate since early September.

The following year-to-date percentages gained/lost graph illustrates the comparative weakness of the XHB for 2018.

A failure of the XHB to take a leadership role in regaining strength would, no doubt, drag the SPX and XLF down further...assuming that historical movements in markets haven't dramatically changed recently.

In that regard, watch for a break and hold below 2600 on the SPX (a level I had identified as near-term major support in my post of October 10) as a signal that further SPX weakness lies ahead...possibly to its next major support level as low as 2400, which correlates to a long-term uptrending Fibonacci fan line, as shown in my post of August 6.

Keep an eye on the 100 level on the following daily SPX:VIX ratio chart, inasmuch as a break and hold below could see the SPX reach that 2400 level...especially if it breaks and holds below 60 and we see another bearish moving average Death Cross form.

Systemic Risk Lurking in the U.S. Housing Market?

The U.S. Homebuilders ETF (XHB) is in bear market territory...down 24.68% from its peak on January 24 of this year.

On a year-to-date percentages gained/lost basis, it has drastically underperformed the 9 U.S. Major Sectors, as shown on the graph below.

Year-to-date % Gained/Lost graph of 9 U.S. Major Sectors + Homebuilders

As shown on the first monthly chart, the XHB is nearing a long-term 38.2% Fibonacci retracement level at 32.23, representing a first major support level. Second major support level (50% Fib retracement) sits at 27.60 on this timeframe.

XHB Monthly

The second monthly chart shows that the XHB has dropped beneath a long-term Fibonacci channel on downside accelerating momentum (MOM) and rate-of-change (ROC).

In fact, the MOM and ROC are both at low levels last seen at the height of the 2008/09 financial crisis...which makes me wonder whether the housing market is plagued with another, as yet unrevealed, systemic risk factor of some kind, and whether it will spread to the rest of the U.S. equity markets.

Time will tell. Keep an eye on the MOM and ROC indicators, as well as on other critical factors that I described in my recent posts here and here, for potential clues in gauging overall market strength/weakness in the short/medium term.

XHB Monthly

In that regard, the following monthly ratio chart of the SPX:VIX ratio shows that price remains below the 150 Bull/Bear Line-in-the-Sand level on downside accelerating momentum (MOM) -- at a level below the one made during the height of the 2008/09 financial crisis -- indicating an unusually high level of rapidly changing volatility in the SPX...another warning hinting of further equity weakness ahead.

SPX:VIX Ratio Monthly

U.S. & World Market Volatility Continues

Further to last Wednesday's post, here's where the U.S. Major Indices stood after each close on Thursday and Friday, respectively.

Thursday's Close:

Wednesday's sell-off continued on Thursday, with the nine Major Indices closing at or near a lower near-term support level (or below, as was the case with the NDX and COMPQ), as shown on the following daily charts.

The following percentages gained/lost graph shows the amounts that these indices had lost to date from their highs of this year.

The Russell 2000 and Nasdaq Transportation Indices were now in correction territory, while the Nasdaq Composite, Nasdaq 100 and Dow Transports Indices were close to that 10% threshold.

Price on the SPX:VIX ratio had fallen to just above a level that I've long referred to as the Uncommitted Zone (between 100 and 60), as shown on the daily ratio chart below.

A drop and hold below 100 would ensure further weakness ahead in the SPX, while a drop and hold below 60 could produce a catastrophic drop in equities.

Either way, as long as price on this ratio remains below 150, we'll see wild, large intraday swings in both directions on the SPX.

This volatility and weakness will likely not die down until price breaks and holds above 200.

Friday's Close:

The week's sell-off stalled on Friday, as we witnessed wild, large intraday swings in both directions before prices settled, either a bit higher, or slightly unchanged (Russell 2000, Utilities, and Nasdaq Transportation Indices), as shown on the following 2-month daily charts of the nine Major Indices.

The following graph shows the percentages that these indices have gained/lost Year-to-date.

The following graph shows the percentages that these indices lost during this past week.

The following percentages gained/lost graph shows the amounts that these indices have lost to date from their highs of this year (August 29).

The Russell 2000 and Nasdaq Transportation Indices remain in correction territory (10%+), so far, this year.

The following tables show the percentages of Major Markets and Sectors that are trading above a variety of moving averages.

A quick glance at those still above their 200-day MA shows that the S&P Energy, Health Care & Utilities Sectors, Dow 30, Dow Utilities and Dow Composite Indices remain the strongest, so far, this year. 

A further breakdown in the Dow Indices, in particular, may spell further trouble for U.S. equities, in general.

The following daily ratio chart of the SPX:VIX ratio shows that price bounced a bit on Friday and remains above the 100-60 Uncommitted Zone...but is still below the 150 Bull/Bear Line-in-the-Sand.

A drop and hold below 100 will ensure further weakness ahead in the SPX, while a drop and hold below 60 could produce a catastrophic drop in equities. 

Either way, as long as price on this ratio remains below 150, we'll see wild, large intraday swings in both directions on the SPX. 

This volatility and weakness will likely not die down until price breaks and holds above the 200 New Bull Market Level.

Keep an eye on the RSI, MACD and PMO indicators for any signs of a reversal to support any further buying in the SPX...otherwise, look for volatility and weakness to remain elevated.

The World Market Index, which has lost 15% from its high on January 25 this year, is trading under the bearish influence of a moving average Death Cross formation, as shown on the following daily chart.

Price stopped just below a major support level of 1850 and sits squarely in between major resistance at 1950 and lower major support at 1750.

Watch for a possible reversal on the RSI, MACD and PMO indicators to support some kind of stabilization in this index...otherwise, look for volatility to remain elevated and for price to, potentially, retest the 1750 level. Such a scenario could very well drag U.S. equities further down, as well (and vice versa)...so, this is an important Index to monitor at this point.

Shanghai Index Continues Freefall With Breakaway Gap

The first CNBC World Stock Markets Heat Map shows Wednesday's big drop in North/South American, British and European markets.

The second Heat Map shows the subsequent overnight drop in the Asian, etc. markets. At the time of writing this article (around 1:30 am ET October 11), the SSEC is down 4.65%.

The Shanghai Index (SSEC) continued its freefall from its January highs with a breakaway gap below a large trading range and continued to fall in early overnight trading in China, as shown on the daily chart below.

In my post of August 6, I mentioned that the SSEC was in a bear market and that if price broke below its last swing low of 2638.30 on the monthly timeframe, it could be headed for its next major support level at 2260, or lower.

Since then, it has continued to slide and price has just broken below that swing low with this gap down, as shown on the following monthly chart.

Both the momentum and rate-of-change technical indicators are in decline, are well below zero and are making a new low...hinting of further weakness ahead on this timeframe.

In my post of August 15, I mentioned that the China Financials ETF (GXC), on a ratio basis compared with the SSEC, was weaker than the index and that it would be important for the financials sector to attract new buyers, otherwise, we'd see the selling continue, or even, accelerate in Chinese markets.

The following daily ratio chart of the GXC:SSEC ratio shows that (as of Wednesday's close) price has continued to weaken and has broken below near-term support of 0.034...on downside accelerating RSI, MACD and PMO indicators...signalling that we still don't see financial support for the SSEC.

Price on this ratio may well continue to drop to its next major support level of 0.030, or lower, before it, either begins to stabilize, or bounces.

Should price on the SSEC drop another 240 points, or so, that would constitute a measured move comparable with the size of its recent consolidation range (from which the breakaway gap has dropped), bringing price to around 2360...100 points above a potential target of 2260. As such, we may see price overshoot the 2360 level and drop to somewhere in between that and 2260, before it, either begins to stabilize, or bounces.

Keep an eye on the MOM, ROC, RSI, MACD and PMO indicators for potential clues as to future price direction for, both the SSEC and the GXC:SSEC ratio.

U.S. Markets...On The Cusp of Chaos

* See UPDATE below...

Further to my observations outlined in my posts of August 6 (where I noted that 2900 represented a major Fibonacci resistance level for the SPX), September 29 (where I mentioned the possibility of equity weakness for the first part of Q4 ahead of the November 6 mid-term elections), and October 7 (where I discussed price on four of the Major Indices being embroiled in a technical chaos formation amid downside accelerating rate-of-change), I'd note that after today's (Wednesday's) dramatic drop in U.S. markets, they are now sitting on or close to near-term major support, as shown on the following daily charts of the nine Major Indices.

Most of them are still hanging onto some of their year-to-date percentage gains, as shown on the first graph below...but have lost a hefty percentage in the past week, as shown on the second graph.

Price on the SPX:VIX ratio has fallen well below both the 200 New Bull Market level and the 150 Bull/Bear Line-in-the-Sand level, as shown on the following daily ratio chart.

All three technical indicators have sunk below their respective neutral levels (50 for the RSI and zero for the MACD and PMO) and are accelerating to the downside, hinting of further weakness ahead for the SPX.

As can be noted on the following monthly chart of the SPX, longer-term major support sits around the 2600 level...a convergence of price support and a long-term median of an uptrending Andrew's Pitchfork formation.

As the SPX made a new all-time high on this timeframe, the momentum and rate-of-change technical indicators did not. In fact, both of these have made a lower swing low and the ROC is now below zero...also hinting of further weakness ahead.

Keep an eye on these latest indicators, together with those identified in my above three posts, for short and longer-term gauges of either, further weakness, or a turnaround any time soon.

* UPDATE October 11...

Wednesday's sell-off continued today, with the nine Major Indices closing at or near a lower near-term support level (or below, as is the case with the NDX and COMPQ), as shown on the following daily charts.

The following percentages gained/lost graph shows the amounts that these indices have lost to date from their highs of this year.

The Russell 2000 and Nasdaq Transportation Indices are now in correction territory, while the Nasdaq Composite, Nasdaq 100 and Dow Transports Indices are close to that 10% threshold.

Price on the SPX:VIX ratio has now fallen to just above a level that I've long referred to as the Uncommitted Zone (between 100 and 60), as shown on the daily ratio chart below.

A drop and hold below 100 will ensure further weakness ahead in the SPX, while a drop and hold below 60 could produce a catastrophic drop in equities. Either way, as long as price on this ratio remains below 150, we'll see wild, large intraday swings in both directions on the SPX. This volatility and weakness will likely not die down until price breaks and holds above 200.

Justice Deserved? Justice Served? Market Reaction?

* N.B. This article was originally begun and posted on October 2...I'm re-posting it here, along with numerous UPDATES & my final conclusion below...

* October 2...

As the U.S. Senate vote of Judge Kavanaugh approaches with respect to his nomination to the Supreme Court (pending the submission of an awaited FBI report), we'll see what the majority of the U.S. Senate decides in answer to the above questions.

So far, the following summation from Ms. Mitchell is before the Senate for their consideration with regard to Ms. Ford's accusations that she made against Judge Kavanaugh in her public testimony in the Senate Judiciary Committee hearing last week (September 27).

Equally, Judge Kavanaugh was permitted to appear at that hearing and present his side of the issue. By the way, Mark Twain once said, "The two most important days in your life are the day you are born and the day you find out why." It appeared to me that, in his testimony that day, the Judge found out why he was born...as did Senator Lindsey Graham, I think.

Arising from that hearing (and the 11-10 Committee vote in favour of advancing the nomination to the full Senate) was the Committee request for the FBI to conduct supplemental enquiries to the Senate investigations that have already been conducted on this and relevant matters.

To date, these are the bare public facts on this matter.

What will the Senate do?...

We'll see what happens after the FBI submits its findings...whether justice will be delivered, or not, by the Senate as it (presumably) considers the facts of this matter, as well as all matters related to its prior multi-day Committee public hearing, numerous one-on-one meetings, thousands of pages of documents (including 6 prior FBI background checks that were conducted during his decades of public service in many jobs), hundreds of letters of endorsement and support from friends, colleagues, peers, professional associations, employers, President Bush, etc., and hundreds of written answers that the Judge has already either participated in or provided...and whether, or not, the final Senate vote affects the U.S. markets.

"Guilty" by accusation...

Regardless of the results of the final vote, we'll see if the massive public smear campaign, that is currently being waged against Judge Kavanaugh, continues afterwards by Democrats and the media...or if they will accept the majority rule and move on.

Ask yourself this...

Would you want a Justice sitting on the Supreme Court to have the same wild (lawless, reckless, anarchistic, and, frankly, jaw-dropping) standard that Senate Democrats have embraced, espoused, and repeatedly declared, which is that no one is presumed innocent and that a simple accusation without proof or corroborating evidence is enough to, immediately and forever, pronounce guilt on the accused?

Does anyone still believe in the U.S. Constitution?

Ms. Mitchell's summation of Ms. Ford's allegations...

* UPDATE October 3...