Pointing Towards More Downside

09/24/2015 7:00 am EST


Ryan Mallory

Contributor, Share Planner

As of Wednesday, the hallmark of the past four trading sessions has been doji candles, so Ryan Mallory, of SharePlanner.com, outlines why he feels this continues to suggest that the gains/losses are happening overnight while equity markets in the US are closed and highlights two stock market price targets to watch over the next few weeks.

Technical Outlook:

  • Bear flag on SPX, Dow Jones Industrial, Russell, and Nasdaq all confirmed Tuesday, leading me to believe that this market will see a larger dose of downside going forward.
  • Volume was much larger than what was seen on Monday, but only slightly above average overall.
  • VIX gave up much of its gains Tuesday only to finish up 11.4% at 22.44. Regaining momentum to the upside has been a huge problem for the VIX of late.
  • SPX 30-minute chart is a bloody mess with no clear direction evident.
  • Chinese PMI data came in Tuesday night quickly sending the market lower about 1% but rebounded on Wednesday and was looking at a flat open for equities.
  • SPX has alternated up/down/up/down for 11 straight weeks, which ties an all time record for most consecutive reversal weeks. Right now that streak is poised to end but that could easily change.
  • As of Wednesday, the hallmark of the past four trading sessions has been doji candles. All four trading sessions resulted in some form of a doji candle. This continues to suggest that—despite all the big moves the market is making—the gains/losses are happening overnight while equity markets here in the US are closed.
  • T2108 (% of stocks trading above the 40-day moving average) dropped an eye opening 25.4%, despite the rally in the final hour of trading, to close at 22.5%.
  • With the break of the bearish flag that has been forming, there are two price targets: 1) The 1904-1911 range, followed by a retest of the 1867 lows of August.
  • Seasonally speaking, this week and the two weeks that follow are considered the weakest trading periods of the year.
  • For swing traders, the gains/losses are made overnight and you have to be willing to hold overnight in order to profit.
  • I don't expect the Fed at any point this year to raise rates now. Not next month and very unlikely in the middle of the Christmas season.
  • Furthermore, the Fed has never raised interest rates at a point where the market was trading lower on the year.
  • The large gaps in the market, the record number of stock buybacks, ETFs that are constantly accumulating/dumping large chunks of stocks, and most importantly, the high frequency trading, shows just how illiquid this market has become in recent years. These entities are the most responsible for the massive market swings that stocks incur each day.

My Trades:

  • Added one new short positions to the portfolio Tuesday.
  • Did not close out any swing trades Tuesday.
  • 30% Short / 70% Cash
  • Futures are all over the place. No clear direction going into Wednesday.

Chart for SPX:

Click to Enlarge

By Ryan Mallory, Founder, SharePlanner.com

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