Last week was a rough one for bulls. And unless you were aggressively long the iShares 20+ Year Treasury Bond ETF (TLT) or Utilities Select Sector SPDR ETF (XLU), you probably endured a few head shots.
From an index standpoint, the SPDR S&P 500 Trust (SPY), Powershares QQQ Trust (QQQ) and SPDR Dow Jones Industrial Average ETF (DIA) declined between 1.2% and 1.65%. The hardest-hit index, the iShares Russell 2000 (IWM), fell nearly 2.5%.
Of the major commodities I track, light crude oil was obviously the week's biggest loser. The United States Oil ETF (USO) declined roughly 6.6%. Those tracking the futures market will note September crude closed at $43.75, a new contract low.
From a sector standpoint, the SPDR S&P Biotech ETF (XBI), SPDR S&P Metals and Mining ETF (XME), First Trust ISE-Revere Natural Gas ETF (FCG) and Energy Select Sector SPDR ETF (XLE) were the week's biggest losers. Given the near-daily declines in oil and metals, I see no need to expound on them further. Biotech, on the other hand, is a newcomer to the house of pain.
A few biotechs particularly hard hit on the week were Acadia Pharma (ACAD), Alnylam Pharma (ALNY), Opko Health (OPK) and BioMarin Pharma (BMRN). Rather than delve into the technicals of each individual stock, just note the XBI closed beneath both its late June and early July swing low, and, for a second consecutive session, beneath its 50-day exponential moving average (EMA).
Before we lay out Monday's trade plan, let's look beneath the surface of the S&P 500.
For those unclear what they're looking at on the chart above, the top chart is a weekly view of the SPY. Beneath the SPY you'll see the NYAD, which is simply the NYSE advance/decline line. Under the NYAD are two additional indications of market breadth. The first is the percent of S&P 500 stocks trading above their 50-day moving average. And the second is the percent of S&P 500 stocks trading above their 200-day moving average.
As you've probably deduced from the downward sloping red trend lines, we have bearish divergences aplenty (and they've been in place for quite some time). Simply put, the SPY is holding its own at a time when fewer than 50% of S&P 500 stocks are trading above their 50-day moving average. That, frankly, will remain an ongoing problem for the bulls.
Turning our attention to Monday's E-mini S&P 500 Futures (Es) auction, we'll want to continue to treat the 2080 to 2083 area as a major pivot. As long as value (and session closes) remain beneath that three-handle zone, a short-term bearish posture will remain appropriate.
Keeping in mind the Es close on top of Friday's volume point of control (VPOC/Value), any rejection from 2080.50 to 2083 would encourage sellers to target 2073.50 (Friday's value), 2068 and 2057.75.
A sustained shift in value above the low-2080s would improve the picture for bulls, and shift our focus toward 2088.75 and 2097.50.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my Twitter feed @ByrneRWS