On Thursday the S&P 500 closed below it’s most recent support level of 2662 and now we must expect the stock market to trend lower to find a new support level no matter what happens today.
I talked about this 2662 level on March 5 before the open that day when it successfully held.
That level was key because it marked the 50% retracement level of the January low and high for the markets.
That might sound strange, but robots use technical analysis support levels to buy into and so them buying that day on support was critical and led to a further rally in the market that lasted a week and took the Nasdaq to new highs.
But then as I wrote on March 13th the stock market rally momentum stalled out.
The next support level on the S&P 500 is really the area of its 200-day moving average at 2584 and 2600, but I doubt it will hold.
The DOW is in the same situation, with it’s 200-day moving average acting as support.
The market is looking nasty with many DOW stocks breaking down and even key fad big cap tech leaders now breaking.
This doesn’t mean that the stock market is going to crash, but confirms to me my thesis that the stock market is really in a topping process (with the top now appearing to be in for many stocks and probably the DOW and S&P 500).
Most likely we’re going to see these support levels bust in the next few weeks with a new panic low being put in to create a new support area.
So when I say we have to look for the next stock market support level what I am saying is I don’t expect the lows of January to hold and we will have to look for signs of panic to signal the creation of a new bottom.
Now you can pick from six reasons to blame for the stock market decline yesterday from news stories:
1)Trump tariffs this time on China.
2)The signing of the Federal spending bill by Congress to bust the deficit.
3)Trump’s lawyer resigning Wednesday.
4)Facebook dragging tech stocks down.
5)The market reaction to Wednesday’s Federal Reserve decision.
6)The release of worse than expect US trade and current account deficit data
Take your pick! CNBC likes to blame the tariffs as it’s an easy way to blame Trump for everything when it is just one little thing compared to everything else.
Now personally I don’t really think news events are causing the stock marke to top out (I look at market cycles, valuations, and the charts for my reasons why the stage two bull market ended to bring us to a stage three topping market), but after the close you can now add Donald Trump’s statement that he is going to pick John Bolton to be his top national security as another reason for the market to drop and gold to go up as he is the biggest neocon warmonger to hit Washington DC in the past twenty years constantly calling for new wars whenever he has appeared on Fox News.
Donald Trump said he would hire the best people, but last night he hired one of the absolute worst to ever work in Washington DC.
You can get the dirt on that here:
And what the ramifications are going forward:
As for as the market goes I do think the decline in Facebook is more significant in importance than people think as it has been a major market leader for years and in my mind has played the same sort of role as CSCO did in the 1990’s – it has been an invincible stock that once broken signals that the market is changing.
I talked about Facebook and other issues yesterday in this interview:
If you think FB alone doesn’t matter well if more big cap leaders get broken like many DOW stocks have this year (such as WMT, MCD, JNJ, KO, and PG) then you will know that it is more than just FB.
I penned a message to someone Thursday morning about Facebook telling them why I think it’s earnings growth is now troubled:
Zuckerberg changed the newsfeed to move to escape the threat of regulation other month. He seems to want for some reason or need the facebook ad platform to be a wild west where anyone can press a button. I advertise on google and they have none of these problems, because they require you to have a verified account and to have a website where you have contact info and you can’t have ads pretending you are someone else. I don’t understand why FB can’t just adopt policies like that – used by almost all large online ad companies too – and make this all disappear. Maybe he needs a wild west for the app advertisers or is making so much from shady advertisers he is afraid to kick them off (but seems like he is heading to worse problems)….maybe he is just a dummy on this? I don’t know, it’s weird – why can’t he just adopt a policy like this: https://support.google.com/adwordspolicy/answer/6014595…
Facebook is going to end up having to become more like Google and treat itself like a media company and be more strict on the types of ads it allows people to run – which may mean kicking off many of the people that spend money with it and that’s going to disrupt the analyst earnings estimates and bring downgrades.
Oh and also for the most important reason why the stock market is being shaky you have to look at where a bear market has already started and that is in the bond market.