Seasonal Drop Looking for Technical Support

It’s no secret the market is reacting negatively to the escalated trade dispute with China, but it’s hard to overlook the seasonality impact here. August’s horrendous performance record has been well documented by us in this space and elsewhere and by many others. Seasonal weakness in August, especially the beginning of the month should not come as a surprise, it is quite commonplace.

Our Newsletter headline on July 25 was pretty clear: “August Outlook: Ripe For A Seasonal Pullback.” We have been repositioning since our May 1 Best Six Months MACD Seasonal Sell signal for DJIA and S&P 500 and completed our move to a fully defensive stance with our MACD Seasonal Sell signal for NASDAQ on July 19.

So now that the S&P is down 6% in the past 6 trading days and NASDAQ is down 7.25% over the same 6 days (DJIA is down 6% over 2 weeks), let’s revisit the technical support levels. Back on June 6 we posted here that it’s “Not a Triple Top Yet – Support Has Held” with this chart.

Current technical support is pictured above in the top chart. I have cleaned up some of the notes from June but the levels have not really changed. Today we broke through initial support at S&P 2875 at the old January 2018 highs and we got dang close intraday to the next level of support at 2815 where the S&P failed intraday back on November 7, 2018, before the December selloff and the “Christmas Eve Crumble.”

My next level of support at 2775 runs through several gaps and consolidations, but the next real level of support is 2725 where we held support in early June. Holding that would be constructive. 2650 is minor support below there, but critical support sits at the old February/April 2018 lows 2580. Below 2580 heads into bear market territory.

Also concerning is the pattern of DJIA Down Friday/Down Mondays. Today was the 5th occurrence of a Down Friday/Down Monday for DJIA in 2019. From page 70 of the 2019 Stock Trader’s Almanac titled, “Don’t Sell Stocks on Monday or Friday” we warn that “During uncertain market times traders often sell before the weekend and are reluctant to jump in on Monday.” We will be following up on this DF/DM indicator more this week.