By Mike Paulenoff, MPTrader.com
This week has been an eventful one for the indexes and the Qs largely because they were in sideways ranges since February 10 or 11 into yesterday. It looked like they were going to break out to the upside, or, in the case of the Nasdaq indices, continue to the upside after breaking out of their sideways ranges. The E-mini March S&P failed at least four times to break through 1158.75 on the high side, and finally gave up yesterday, Thursday, and plunged into Friday at mid-day. The low there is 1137.75 so far.
So you had a 20-point decline in the E-mini March S&P, and that in and of itself was a breakdown from the range that has been the high-level consolidation area. Thisis now starting to take shape as a minor top formation rather than a sideways consolidation area.
Looking at the damage done to the daily charts in contrast to the hourly, the daily shows a very interesting situation. The trendline from the November lows at 1030.25 runs up through the December 3 low and then the February 4 low at 1122, and that today cut across the price axis at exactly 1140. The market broke down this morning through 1140, going as low as 1137.75, but has rebounded and now is setting at 1144.75 about 40 minutes before the close of futures.
If the futures cannot sustain above 1140, not only will you get a close below critical support at 1142, you'll also get a close below the trendline that goes all the way back to November 21. That is a significant technical event that should have significant implications on price direction, at least for the near-term. Should that prove to be the case, that we get a close below 1140 today or on Monday, the next immediate target would be about 1120.
Keep in mind the rising 54-day moving average is at 1115. So somewhere between 1120 and 1115 would be our next target for a test of support if we can get a decline that sustains below 1140.
In the event we can't get a close below 1140, then I think we're in a sideways congestion area. But it will be in a lower range -- and lower plateau -- than we were last week or the week before when the sideways range was between 1142 and 1158.75. I think we'll be between 1150 on the high side and 1138 on the low side.
That, I think, is the best-case scenario. The more negative scenario would be a break below 1140 that triggers a sell-off into the 1115-20 next target zone.
In contrast to the S&P, which actually tried to make new highs this week above the 1158.75 area, the QQQs actually peaked on the 20th of January at 38.85, and then plunged into the February 4 low at 36.32.
All the action from February 4 into yesterday's high at 37.90 was, from my perspective, countertrend and a correction of the original move down from January 20 to February. The decline over the last 24 hours from 37.90 to 36.55 to me represents the continuation of a larger downside move that started on January 20.
Any rally from here should fail in the 37.20-.40 area at most in terms of a recovery. From a larger perspective, we have the 54-day moving average right now on the daily chart at 36.74.
So right now, although today we traded below that moving average, as low as 36.55, we're trading just above it as we come into the close. Right now we're at 36.91. If we close below 36.74, that will be the first close below the 54-day moving average since back in early December. In addition, the trendline that extends up from the August lows down near 30 cuts through the price axis at 36.50. So that's a key level as well.
So we're watching the 54-day moving average at 36.74, and we're watching the trendline from last August at 36.50. If those two very serious support levels are broken in the next downmove, the Qs should take a nosedive and go to at least 35.20 to 35, if not lower.
On the upside, if in fact the Qs do rally and manage to climb above 37.45 or so, then the near-term situation will be neutral. But the intermediate-term situation will remain bearish and stay bearish unless and until 37.90 is taken out, which was the high for this week.