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Desperately Seeking Support

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JEFF COOPER'S MARKET ANALYSIS
DailyFeed
“Everybody believes in something and everybody, by virtue of the fact that they believe in something uses that something to support their own existence.”
-Frank Zappa
 
The Dow Jones Industrial Average (INDEXDJX:.DJI) and S&P 500 (INDEXSP:.INX) extended their losing streak to 5 consecutive decliners yesterday.
 
Five consecutive losing days is a rare bird historically on the Dow Jones, so the normal expectation would be for a rally attempt, especially with the Dow testing its 50-day moving average.
 
DJIA Daily Chart:


 
However, another early rally may be difficult to engineer for the technical bulls with early rallies of late faltering in the second half of the session.
 
This is important because it is the close that players take home, which points to underlying sentiment. Someone is out there waiting to sell into bids. If the market fails to generate a rally attempt that sticks after the first hour, the bears may take batting practice early today. Market participants may front run recent sessions' late rollovers.
 
In fact, the S&P 500 that was suspect on breaking back below its August peak and reversing out all of last week's Fed Day gains has led to a record bearish losing streak in 2013. This suspect market could quickly become a busted market on a break of the May high. That is the level the S&P 500 is flirting with going into quarter-end.
 
This is not lost on the bulls who will probably try to circle the wagons today with the Dow having closed slightly below its 50-day on Wednesday -- if they can divert their attention from buying bonds for one day. If a rally can’t be engineered in stocks, it’s a sign of weakness and surprises could happen on the downside.
 
Today is a key day on the Gann 55-day Fibonacci count from the August high, so any downside momentum should be respected as often times this is when the wheels have come off in the past. Markets that creep lower often aren’t satisfied until there is a climatic crescendo. Technically, if the Dow should cave, in this time frame, the 200 DMA near 14,700, which ties to a trendline off the April and June lows looms large (see the daily Dow chart above).
 
Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) were both hit yesterday and may be the lynchpins today if the arbs don’t use them to stage a rally. If they are both down again, that could be the key to further weakness in the indices
 
Apple will be in the daily Plus-One/Minus-Two buy position on any trade below Wednesday’s low today. If this plays out, it will be occurring on a pullback into gap window from September 23's huge gap in addition to a backtest of the 20 DMA. However, note that the 20 DMA is pointing down, so it may not be supportive. 474 ties to a 90 degree decline from the 496 square-out noted in this space the other day. 474 ties to a backtest of the 50 DMA, so that may be a better risk to reward long setup. That may entail a turndown of the 3-Day Chart in Apple.
 
Daily AAPL Chart from August 19 with 20 and 50 DMAs:


 
Notably, Apple is under a series of lower highs since its major mid-August square-out. At the same time, it has a huge upside gap from Monday, which may underscore the notion that mid-September was a major higher low. Interestingly, the mid-September lows have the look of an interim Island Bottom. A breakout above the triple declining highs in Apple -- if it happens -- may imply an important buy signal, especially given the idea of a potential major higher low in September on the one year anniversary of its all-time high. Moving below its 50 DMA and offsetting Monday’s large upside gap leaves Apple suspect again. Does Apple hold "A" key for the path the broad market will travel in the fourth quarter?
 
Google, like the Dow lost its 50 DMA on Wednesday, but only marginally so. It has a series of lower highs on the clock and left a 180 sell setup yesterday. There are double bottoms around 845/850. Google's 200 DMA has not been tested in some time and is rising. Is it possible Google has an agenda to satisfy a triple bottom coincident with a test of its 200 DMA into the new quarter?
 
Daily GOOG Chart here for 2013 with its 50 and 200 DMAs:


 
The dollar could be a catalyst for an outsized move in the markets. The dollar shows what looks like a Bear Flag following a decisive large range break last week. Below 81, the dollar remains suspect.
 
Dollar Chart:


 
A Point & Figure chart of the dollar shows that a break of 79 will issue a major alarm.
 
Dollar Point and Figure Chart:



Because the angle of attack to the downside in the dollar since early September has been so sharp, the 79 level looks in jeopardy. The ramifications and ripples caused by a this break of key support in the world reserve currency in global markets on the heels of the Fed’s failure to rein in its money printing cannot be underestimated.
 
If SPDR Gold Trust (NYSEARCA:GLD) and Market Vectors Gold Miners ETF (NYSEARCA:GDX) can build on yesterday’s little rally attempt and recapture last weeks spike, it may indicate a "reset." In other words, that substantial longs and shorts alike have been washed out by the recent compressed volatility. Remember GLD is at the 2-year anniversary of its record high.
 
Tangential to the picture on the dollar is the chart of JPMorgan (NYSE:JPM). It’s unlikely to see major rallies without the banks and the picture in JPMorgan suggests weakness.
 
JPM Chart:


Click to enlarge
 
Conclusion: Weakness past the first-hour today suggests a defensive posture. A break of the May high suggests further selling pressure.
 
Form Reading Section:

Green Mountain Coffee Roasters (NASDAQ:GMCR) Chart:



ChannelAdvisor (NYSE:ECOM) Chart:

POSITION:  No positions in stocks mentioned.

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