Friday, July 24, 2015

MTU Weekend Ed. - A Tale of Benchmark Indexes (7/24/15)

Stocks broke July's unsustainable momentum and dropped sharply this past week.

Notably, the SP400 mid-cap index and the Russell 2000 small-cap index have already broke their July lows (Chart 1).

Meanwhile, after a parabolic rise with unsustainable momentum (see Tech "mania" (7/17/15)), NDX is down about 3% over the past week, in what appears to be an island reversal, and filling two prior upward gaps (Chart 2).  Near term upside potential includes an attempt to fill the downward gap or this past week's pullback being a (suspect) small-degree fourth wave.

The pullback is anticipated by our base case scenario as wave (b)-down of E-up (Chart 3 and Chart 4). At the moment, SP500 appears near term oversold and is also approaching potential support. Under this interpretation, wave (c)-up is insight to push SP500 to new highs.

However, the lower lows in MID and RUT and a very deep pullback in the DOW raise the possibility that the current pullback is completing wave [d]-down which commenced at the May high (Chart 3 gray [d]). Under this interpretation, once wave [d]-down concludes, wave[e]-up should push SP500 to new highs.

On the "very" bearish side, the red tracking count in Chart 3 highlights the possibility that a double zigzag (not an EDT) wave E-up since the 2014 wave D-down low is complete at 2132.82.