The political tensions between U.S.-North Korea slammed the market hard last week.
Other than Dow, indexes such as Nasdaq and S&P 500 dipped below the 50DMA lines. Russell 2000 is testing the 200DMA support line.
The weakness was due to heightened geopolitical tensions surrounding North Korea.
The war of words between the USA and North Korea is hurting the market health.
In his speech, President Trump warned his enemy that they would face ‘fire and fury’ if they keep threatening U.S.
Pyongyang replied that they are deliberating with the idea of a missile strike on U.S. territory of Guam.
The nuclear situation is spatting uncertainty. It prompted investors to take profits from the stock market.
Is this a buying opportunity or a preview to something worse?
It’s hard to tell. The market withstood and recovered from such headlines correction. But it feels different this time.
Every market index above were in the red. All of them displayed more than 1% losses. This is the first time that all displayed heavy losses of at least 1%. Small cap index, Russell 2000 was hit the worst with 2.7%. For 2017, their gains have been reduced significantly. One good news is that they still show positive return so far.
Dow Jones showed strength in the daily chart. After climbing for 10 consecutive days, the index digested its gains for the next 3 days (dotted line). It currently found support above 21,800. See if it can continue to stay above here and allow the 50DMA line to catch up.
Dow Jones showed resilience in the weekly chart too. Although it was down for the week, the volume (red arrow) is relatively lower than the prior 2 weeks. Overall, the long-term trend is still up as shown by the rising 50WMA and 200WMA line.
Nasdaq has been performing poorly these 2 weeks. With 8 losses in the last 12 days, this is clearly bearish. On Thursday, it pierced below the intermediate 50DMA trend at rising volume. Another thing to pay attention is that the trend line for 50DMA has changed bit It seems like it is about to move downwards. Finally, the index has been pulling back to the 50DMA line several times in 2017 without moving sideways to rest. See if this will happen for August and/or September.
Nasdaq is now testing the old resistance of 6200 in the weekly chart. Another bearish note is this is a 3 consecutive weekly loss for the index (red arrow). It seems like it is about to consolidate and form a new base pattern. Overall, the intermediate and long term trend is still pointing up.
S&P 500 also showed weakness like Nasdaq. In the daily chart, it showed 9 down days in the last 16 days (red arrow). One caution to note is the index plunged below 50DMA support line at a higher volume on Thursday. Another thing to pay attention is that the trend line for 50DMA has changed bit It seems like it is about to move downwards. See if it can bounce above the line or continue its price dip in the next several days.
In the weekly chart, S&P 500 broke below the old resistance of 245 (dotted line) at a higher weekly volume. This action looks normal as the index has been moving higher for the last 5 weeks. Overall, the intermediate and long term trend is still pointing up.
Russell 2000 is hurt badly in the daily chart. 9 down days in the last 13 days (red arrows) is a big concern. This is especially true after the index crossed sharply below the 50DMA line at an increasing volume. Also, the trend line for 50DMA has changed bit. It seems like it is about to move downwards but it is still insignificant for now.
In this weekly chart, it shows that the index has return into the box. This is the second time that it failed to stay above the 10-month consolidation after it broke above the resistance of 142. One bearish note for the week is that the index dipped towards 136.57 at a heavy volume.
More investors are skeptical about the market remaining bullish for the next 6 months. This is proven by a drop of -2.4%, the largest in the past few months. Many are running towards the neutral (+2.2%) and bearish camp (+0.2%). Watch this space to see if the build-up in the bearish sentiment continues.
Over to the index that measures fear and greed. What a drastic change in just a week! The index made a big 50% drop; from 64 to 28 points. In my opinion, this is a knee-jerk reaction from mass market. It could be due to political news or other things. Let the dust settle before we deduce the reason behind the recent negative performance.
Let's briefly review how the market behaves so far.
The week sent warning signs that warrant for our immediate attention.
Expect several market pullbacks and increased volatility. Let's see if the market can remain resilient and steadfast like previous years.
What can you do to storm during this period?
"It hasn’t paid to turn bearish, but there is nothing wrong with being cautious until market conditions improve." -Joe Fahmy