Title: Market Analysis: Potential Breakdown Gaps and Oversold Conditions – What to Expect Next
As the world’s leading investment manager and financial market journalist, I am here to provide you with a detailed analysis of the current market conditions and what to expect in the coming days. Friday’s big gaps lower have the potential to turn into breakdown gaps, but for now, the near-term oversold conditions suggest a possible move into the gap price vacuum, with the Russell 2000 ($IWM) leading the way.
The S&P 500 finished with a neutral doji just above its 50-day MA, hovering in a support zone between $207.50 and $210. Technical indicators are showing new ‘sell’ triggers in On-Balance-Volume and ADX, but intermediate-term stochastics have not yet reached typical support levels seen in bull markets. Aggressive bulls may look for a test of the 20-day MA.
On the other hand, the Nasdaq was unable to hold its 50-day MA and is now testing the May swing high. More significant support is expected around 5,265, with intermediate-term stochastics showing oversold conditions. Technicals are bearish, and Friday’s selling confirmed distributions, posing challenges for bulls in the near term.
The Dow Jones Industrial Average found support at the March swing high of 15,540s, with potential for a move into Friday’s gap. The index to watch this week is the S&P 500, which gapped down to its 200-day MA. Technicals are bearish, but a v-shaped reversal is not out of the question.
Looking ahead, long-term trends are becoming uncertain. The S&P 500 has lost trend support from late 2023 but is holding 50-week MA support. The MACD is on a ‘sell’ trigger, but other technicals remain positive. The Nasdaq finished on weekly support but saw a bearish shift in technicals.
For the upcoming week, expect some near-term relief with a move back inside Friday’s breakdown gap. However, as the gap closes, bears may return. With the approaching season of weakness in September and October, as well as the U.S. election in November, markets are likely to remain volatile. The next major rally may not occur until after the election, so brace yourself for a bumpy ride in the coming months.
This analysis breaks down the current market conditions, highlighting potential opportunities and risks for investors. Stay informed, stay vigilant, and be prepared for the twists and turns of the financial markets.