Putting the Selloff in Context of Weekly Triple Index Structure

Aug 8, 2011: 12:54 PM CST

When markets turn volatile, it’s often helpful to pull-back the short-term perspective to the bigger picture of chart index levels and previous developments.

Let’s take a quick moment to view the “Bear Market and Recovery” perspective in the S&P 500, Dow Jones, and NASDAQ Indexes.

I wanted to focus specifically on two structural levels across the equity index landscape.

First, we have the confluence of price and the 200 week SMA at 1,150 – our simple downside target when 1,250 then 1,200 failed as support.

The 1,150 level reflects the January 2010 high along with nominal highs during mid-2010.

The breakdown under 1,200 also puts us in the context of where the market ‘fell off a cliff’ during the heart of the Financial Crisis of late 2008.

Should 1,150 fail, it would be easy to envision a further decline to the confluence price support at 1,040 from the majority of 2010.

The structural picture is very similar in the Dow Jones Index:

The Dow has a confluence at 11,000 which is where we are at the moment.  Beneath that is 10,750 which is the important confluence of the price pivot high from January and July 2010 along with the falling 200 week SMA near 10,750.

Should the 11,000 then 10,750 index levels fail to bring in buyers, we’d look for a simple play to 10,000 which was the nominal support from 2010 – just like 1,040 held in the S&P 500.

Similar to the S&P 500, the failure of 11,000 to hold in September/October 2008 preceded the crash of 2008.

The Tech-heavy NASDAQ shows a different confluence support picture:

Unlike the S&P 500 and Dow Jones, the NASDAQ rallied to a new recovery high, peaking shy of 2,900 which was above the market top in October 2007.

And unlike the S&P 500 and Dow, the index is not currently (as of today) sitting atop a weekly pivot confluence.

The corresponding dual-support level is 2,300 in the NASDAQ – over 100 points lower than where we stand today.

Should the 2,300 confluence fail, then the target declines to the 2,100 support pivot.

There are two other facts I wanted to show that appear in all three indexes:

  1. The lengthy negative divergence into the May 2010 High
  2. The visible volume surge last week

The lengthy divergence was similar to that of late 2009, and the volume surge is similar to the Flash Crash period of May 2010.  Those are merely interesting facts rather than key things to watch.

In times of volatility, pull the perspective back and reference these key levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “Putting the Selloff in Context of Weekly Triple Index Structure”

  1. A Quick Review of the SP 500 Long Term Fibonacci Retracement Levels | Afraid to Trade.com Blog Says:

    […] I showed in this morning’s post on long-term reference levels, the key short-term price levels converge about the 1,140 to 1,040 range which is the 2010 […]

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