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Another Market Sell-off?

The daily wild intra-day market swings over the past 2-weeks have begun to impact the psyches of investors. An exogenous or an external event such as the coronavirus is an unexpected event, and as such, it has added more uncertainties and confusion to the global marketplace.


The daily 1,000-point moves in the Dow Jones Industrial Average (INDU) over the past week has become common. Is this excessive and out of the norm? So far this year there have been 5 occurrences INDU has registered swings of 3% or greater. This matches the frequency of 3% or greater moves during 2018 timeframe (5 times), and before this it was during 2011 (9 times). However, during the global financial crisis from 2007-2009 the equity markets experienced extreme swings. For instance, during the 2009 time period INDU witnessed 15 occurrences of 3% or greater swings and during 2008 there were an astonishing 38 times when INDU closed 3% or greater in either direction.


It is isn’t necessarily the closing changes of 3% or greater that is stunning, but also the extreme intra-day swings. Markets are now moving 1% in a matter of a few minutes. On the surface, you can blame electronic and computerized trading, but this is often the direct result of liquidity suddenly drying up which creates vacuums in the marketplace. What we are experiencing is totally different from before.


Are the extreme intra-day swings and increasing frequencies of daily volatilities a warning of an impending major top or a major bottom? So, how will we know?


Enclosed below are the intra-day charts of key U.S. stock indexes including S&P 500 Index, Dow Jones Industrial Average (INDU), NYSE Composite Index (NYA), NASDAQ Composite Index (COMPQ), and NASDAQ 100 Index (NDX).


Important stock indexes have all been confined to 3-day trading ranges. It appears that they are all converging toward key technical levels. This implies the bulls and bears are locked in a major near-term battle, and the outcome of this battle will decide the next directional trends. Key technical levels are summarized below:


SPX (3,023.894)


Intra-day trading range = 2,976.63 (3/3/20 low) and 3,130.97-3,136.72 (3/3/20 and 3/4/20 highs)


3-day technical base = 160.09


Breakout above 3,130.97-3,136.72 = 3,187 (61.8% retracement) and 3,296.81


Breakdown below 2,976.63 = 2,855.84 (2/28/20 low) and 2,816.54ay trading range = 2,976.63 (3/3/20 low) and 3,130.97-3,136.72 (3/3/20 and 3/4/20 highs)


INDU (26,121.28)


Intra-day trading range = 25,706.30 (3/3/20 low) and 27,074.59-27,102.34 (3/3/20 and 3/4/20 highs)


3-day technical base = 1,396.04


Breakout above 27,075-27,125 = 27,702 (61.8% retracement) and 28,498


Breakdown below 25,706 = 24,681 (2/28/20 low) and 24,310


NYA (12,593.03)


Intra-day trading range = 12,442.50 (3/30/20 low) and 13,013-13,011 (3/3/20 and 3/4/20 highs)


3-day technical base = 580.20


Breakout above 13,011-13,013 = 13,086 (50% retracement), 13,337 (161.8% retracement, and 13,593


Breakdown below 12,432.50 = 12,024.40 (2/28/20 low) and 11,852


COMPQ (8,738.59)


Intra-day trading range = 8,602.89 (3/3/20 low) and 9,019.96-9,070.32 (3/3/20 and 3/4/20 highs)


3-day technical base = 467.43


Breakout above 9,019.96-9,070.32 = 9,237.02 (61.8% retracement) and 9,537.75


Breakdown below 8,602.89 = 8,264.16 (2/28/20 low) and 8,135.46


NDX (8,671.66)


Intra-day trading range = 8,516.58 (3/3/20 low) and 8,952.11-9,000.46 (3/3/20 and 3/4/20

highs)


3-day technical base = 483.88


Breakout above 8,952.11-9,000.46 = 9,124 (61.8% retracement) and 9,484


Breakdown below 8,516.58 = 8,133.85 (2/28/20 low) and 8,033



Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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