More Losses Coming For Dow Jones Industrial Average, As Technicals Break Down?

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May 18, 2017 8:09am INDEXDJX:.DJI NYSE:DIA


The weather may be heating up, but the stock markets have suddenly turned ice cold. Technical analyst Dave Chojnacki of Street One Financial recaps stocks’ worst day in six months and updates the important technical levels to watch, as volatility roars back in a big way.

Concerns that the Trump economic agenda may face major delays spooked the equities markets on Wednesday, pushing prices significantly lower. It’s worth remembering that stocks have had a good run since the election, and a small pullback would be healthy for the markets.

Specifically, the NDX was sitting in overbought territory and was ripe for a downturn. Traders ran for cover yesterday into Gold (GLD), Bonds (TLT) and Utilities (XLU). By the end of the day, all three major indices were down significantly and did some damage to technicals.

At the close, the Dow Jones Industrial Average (DJIA) fell 1.78%, the S&P 500 (SPX) lost 1.8%, and the Nasdaq 100 (NDX) gave up 2.5%. Breadth was decidedly negative, 4 to 1, on heavy volume. ROC(10)’s declined with all three majors averages moving into negative territory.

RSI’s also moved significantly lower, with the DJIA and SPX ending in the 30’s. The NDX, which had been in overbought territory, ended the day at 50.3. The NDX and SPX crossed below signal in the session, joining the DJIA, in an important weakening of technicals.

The ARMS index ended the day at 1.22, a negative reading.

The DJIA and SPX fell through their 20 and 50 day moving averages in the session: DJIA-20D-20893, 50D-20780, SPX-20D-2386, 50D-2369. The DJIA and SPX both traded down to their lower Bollinger Band® of 20608 and 2356, respectively. For the SPX, 2356 is also a gap support level. The next critical support area for the SPX is 2322 to 2328.

The NDX was the biggest loser on the day, as it was fairly overbought heading into the meltdown. It broke through its 20D-SMA of 5609, but continues to hold above its 50D of 5482. The NDX has a gap close support level of 5450. Critical near term support is 5353.

IWM (iShares Russell 2000) was also a big loser, down 2.7%, exhibiting the widespread losses. The VIX, which has been near record lows for the previous few weeks, spiked 46% to 15.59. Fear is clearly back — at least for now.

Near term support for the NDX is at 5575 and 5550. Near term resistance is at 5588 and 5600. Near term support for the SPX is at 2356, 2350 and 2328. Near term resistance is at 2369 and 2386.

Europe is significantly lower in early trade, while U.S. Futures are pointing moderately lower in the premarket. Major economic reports on tap today include Jobless Claims at 8:30am, Philly Fed at 8:30am, Leading Indicators at 10:00am, and Natural Gas Inventories at 10:30am.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) fell $0.34 (-0.16%) in premarket trading Thursday. Year-to-date, DIA has gained 4.54%, versus a 5.50% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 75 ETFs in the Large Cap Value ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki

Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.

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