I should start by saying I have a short bias. It's not a clear cut play given the dominance of trading ranges since the start of the year, but sellers may be looking to turn the screw. Holiday volumes will keep things scrappy into September, but markets may get a kicker before then.
The most vulnerable of the indices is the Dow. It's knocking below 17,625 support after falling below its 200-day MA for a second time in July. Bears will hold control as long as the index is below 17,800 (and 200-day MA). Technicals are weak, and nearly oversold, but three of the last four trading days have registered as distribution.
The other index struggling is the Russell 2000. It's trading just below a 1,240 control level with two selling spikes above this price. The index has survived one test of its 200-day MA, but is unlikely to survive another. Shorts may look to take a bite if the 50-day MA is tested.
The Nasdaq spiked high above 5,150, but managed to finish above yesterday's close, thereby registering accumulation. The MACD is close to a new ‘buy' signal above the bullish zero line. And unlike Large and Small Caps indices, technicals didn't register a net bearish turn. If buyers are going to make a stand, this is the index to do it.
Helping the Nasdaq is a potential bullish wedge in the Semiconductor Index. On the flip side is a fast approaching ‘death cross' between 50-day and 200-day MAs. It might be a temporary reprieve – perhaps a rally to the 50-day MA – but there is a chance a rally here could fuel the Nasdaq (or vice versa). Semiconductors have taken big hit since May, but sellers may have pushed their luck a little far with this one in the near term.
The battle lines remain well defined with bears pressuring Large and Small Caps, while bulls look to put some life into Tech indices. All the cards look to be held by apple (given its weighting). The last two big sell offs in 2008 and 2012 trimmed over 35% off its share price; a similar move here would bring it into the 80s. The real action is unlikely to arrive until September, but there may be an opportunity for some fun before then.
