Index Analysis August 3, 2015

 Index Analysis: August 3rd, 2015

The second quarter of earnings is coming to a close, and it has been lack-luster to say the least. It looks like businesses that have heavy sales in China did not do well, while producers of only American goods have had stellar quarters. This alone, leads you to believe that there is a strong US economy, while China is starting to slump. With the Greece Crisis contained, for now, and The Fed poised to raise rates in September, let’s take a look at the technicals of the major indices.

Dow Jones Industrial Average

The Dow has moved sideways all year. There is a lot of indecision going on, and the price swings back and forth from low to high. The pattern it has created is a pennant going into a widening formation.

The formation here looks to be a bearish one. The failure in the third upward swing looks like it will fall back down to confirm the reversal.

S&P 500

The S&P is also range bound, starting as a pennant then breaking down. However when it broke out of the pennant it hit some resistance around 2045. It also looks like a top has been created at its high. In the bigger picture, it looks like the S&P is in a sideways range, but in a closer inspection, it has the same formations as the Dow. It goes from an upwards pennant, do a downward broadening formation.

The MACD also has some divergences and shows a reversal. I think a bear is coming out of this one.

Nasdaq Composite

The Nasdaq Composite has continued to trend upwards, but has remained in a range. This is the only of the major indices that has an actual direction, however it did break the trend in early July. This break could have some significance, not particularly because of the graph, but because the other two indices are showing bears, while the Nasdaq keeps fighting through. So I think this break will eventually become part of a reversal.  

Russell 2000

The Russell 2000 was in a range for two years, before it broke out into a new range. It looked almost like the S&P, where it was in an upward range, but has broken down and formed a range. One good thing that the Russell 2000 has that the other indices do not have is tested support levels. The others have been going straight up, and have very little tested supports. So we may be able to use the RUT to determine where supports may be on the other indices.

Conclusion

In my opinion, we will be heading into a confirmed bear market in the next couple of months, with the beginning starting in mid-July. How long will the bear last? Well if you look at wave theory, it could be 15-20 years, but we will have to watch to see.