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Another Bearish Island Reversal

Another Bearish Island Reversal


Concerns of rapidly rising Covid-19 infection cases across key states including Florida, Texas, and California and potential tariffs against Europe, continued trade tensions with China, and Europe’s planned digital tax on US internet companies led to a broad-based market sell-off into the end of the day. Dow Jones Industrial Average fell 2.7%, SPX Index declined 2.6%, and NASDAQ Composite finished down 2.2%, after recording record closing high yesterday.


As we head into the end of the second quarter and the end of the first half the year market it appears market volatility is beginning to rise once again. A large reversal pattern last week called a bearish island reversal on 6/11/20 first warned of increasing market volatility. This was followed by a negative outside day on 6/19/20 and today, a smaller bearish island reversal developed in several key US stock market indexes including S&P 500 Index (SPX), Dow Jones Industrial Average (INDU), and NYSE Composite Index (NYA) into the market close.


Interestingly, the leadership NASDAQ Composite Index (COMPQ) and the NDX Index (NDX) escaped the bulk of the technical damages. In fact, COMP and NDX briefly recorded new all-time highs on 6/23/20 before correcting today. Nonetheless, negative outside weeks occurred during the week of 6/8/20 as well as negative outside months developed in Feb 2020.


The failure of SPX, INDU, and NYA to overcome the June reversal patterns accompanied by neutral market breadth readings suggest investors are selective and are not broadly participating in the marketplace. This is good and bad. Lack of participation in the marketplace warns of a correction to the Mar-Jun 2020 rally. However, the consolidation can also help to alleviate an overbought condition and curtail speculative buying from escalating into stock market bubbles.


Enclosed are updated charts of SPX, INDU, and COMPQ with the associated key technical support and resistance zones. As we have alluded to in yesterday’s blog an important battle is developing between the bulls and the bears as evidenced by the convergences of key moving averages including the 50-day ma and the 200-day ma as well as the 10-wk and the 30-wk ma.


S&P 500 Index (SPX – 3,050.33)


Resistance 1 = 3,115.01-3,127.12 (6/24/20 island reversal gap down)

Resistance 2 = 3,155.53-3,181.49 (top of 6/11/20 gap down and 6/19/20 high)

Resistance 3 = 3,233.13 (6/8/20 high)

Resistance 4 = 3,259.81-3,360.76 (2/24/20 gap down)

Resistance 5 = 3,393.52 (2/19/20 all-time high)


Support 1 = 3,020 (200-day ma)

Support 2 = 2,946-2,970 (50-day ma, 6/15/20 low, and 5/18/20 breakout)

Support 3 = 2,867-2,914 (extension of 5/18/20 breakout and 5/18/20 gap up)

Support 4 = 2,827-2,835 (Apr 2020 uptrend and 38.2% retracement from Mar-Jun 2020 rally)

Support 5 = 2,712-2,767 (Late-to-mid Apr and May 2020 lows and 50% retracement)

Support 6 = 2,538-2,590 (4/6/20 gap up and 61.8% retracement)

Support 7 = 2,447.49 (4/1/20 low)

Support 8 = 2,301-2,344 (3/24/20 gap up)

Support 9 = 2,280.52/2,191.86 (Mar 2020 reaction lows)


Dow Jones Industrial Average (INDU – 25,445.94)


Resistance 1 = 25,297-26,060 (6/24/20 gap down)

Resistance 2 = 26,294-26,938 (6/11/20 gap down, 200-day ma, and 6/16/20 high)

Resistance 3 = 27,580.21 (6/8/20 high)

Resistance 4 = 28,169.5/28,403-28,893 (1/31/20 low and 2/24/20 gap down)

Resistance 5 = 29,373.62-29,568.57 (1/17/20 and 2/12/20 all-time highs)


Support 1 = 24,482-24,851 (5/26/20 gap up breakout, 50-day ma, and 6/15/20 low)

Support 2 = 23,730-24,060 (38.2% retracement and 5/18/20 gap up)

Support 3 = 22,480-22,942 (50% retracement, 4/21/20 & 5/14/20 lows and 4/6/29 breakout)

Support 4 = 21,448-21,792 (61.8% retracement and 4/6/20 island reversal gap up)

Support 5 = 20,735 (4/2/20 low)

Support 6 = 19,121-19,649 and 18,917.5 (3/24/20 gap up and 3/18/20 low)

Support 7 = 18,917.46 and 18,213.65 (3/18/20 and 3/23/20 lows)


NASDAQ Composite Index (COMPQ – 9,909.17)


Resistance 1 = 10,086.89 (6/10/20 high)

Resistance 2 = 10,221.85 (6/23/202 all-time high)

Resistance 3 =10,515 (top of Mar 2020 uptrend channel)


Support 1 = 9,705-9,842 (bottom of Apr 2020 uptrend channel)

Support 2 = 9,403-9,501 (6/1/20 breakout and 6/15/20 low)

Support 3 = 9,241-9,251 (50-day ma and 5/20/20 breakout)

Support 4 = 9,018-9,144 (5/8/20 breakout, 5/18/20 gap up, and 5/27/20 low)

Support 5 = 8,850 (38.2% retracement)

Support 6 = 8,695-8,705 (200-day ma and 5/14/20 low)

Support 7 = 8,427-8,538 (50% retracement and 5/4/20 low)

Support 8 = 8,216-8,359 (4/21/20 low)

Support 8 = 7,880-8,003 (61.8% retracement and 4/6/20 breakout)

Support 10 = 7,519-7,618 (4/6/20 island reversal gap up)

Support 11 = 7,288.11 (4/3/20 low)

Support 12 = 6,985-7,170 and 6,686.36 (3/24/20 gap up and 3/18/20 low)

Support 13 = 6,631.42 (3/23/20 low)



Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


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