Tuesday, January 05, 2016

Chinese Hangover

Heavy losses in Chinese markets were going to make it difficult for bulls to defend support when U.S. markets opened.  There was some clawback into the close of business, but substantial gap downs remain.  Volume also climbed in confirmed distribution, another tick in favour of bears.

The Russell 2000 followed with a break from its 'bear flag', although it would have been impossible to have benefited from the open.  A retest of October lows would appear to be a minimum test, but a new MACD 'sell' trigger below the bullish zero line suggests worse is to come.


It wasn't much better for the Tech averages. The Nasdaq 100 gapped down to its 200-day MA and held it (for now). What nascent bullish technicals in play at the end of December were undone by Monday's close.


The Nasdaq made a clean break of trendline support, but held on to 4,900 horizontal support. As with the Nasdaq 100, whatever bullish technicals were in play last week were gone today.


While an argument could be made for the Dow remaining inside its trading range, the S&P made a clean break of rising trendline support.  However, it was able to hold horizontal support around 2,000 (which is the neckline from the August/September double bottom). If today's lows are undercut, then there is a void of demand down to October lows.


Given trading restrictions brought an early close to the Chinese session it's likely we haven't seen the last of the panic selling.  It's going to be hard to be a buyer if further losses are accrued in the Asian session. This opens up the chance for a move to retest the Fall/Autumn double bottom. The latter lows were a major bottom (see tables below), but this doesn't exclude the chance for another substantial swing low for the early part of 2016.

You've now read my opinion, next read Douglas' and Jani's.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com, and Product Development Manager for ActivateClients.com. I do a weekly broadcast on Friday's at 13:30 GMT for Tradercast, covering indices, FX and gold, silver and oil - all are welcome! You can read what others are saying about Zignals on Investimonials.com.

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