Futures were pretty flat this morning and it looked like it was going to be a relatively flat open for the markets. But about an hour before the market open, the Treasury Department announced that they would at least double the size of its government debt repurchases. Futures ripped higher on this news as it sent yields lower. The 10 year treasury yield fell sharply on the news and finished the day down 1.36% at about 4.64% after breaking above the July highs yesterday. However, while markets did rally on this news, they didn't finish strong. The Nasdaq closed up just 0.16% while the Nasdaq 100 closed down 0.22%. This was again due to weakness in semiconductors as the SOXX and SMH etf's closed down 2.2% and 1.55%, respectively. The rest of the markets finished weak as well though. The S&P only gained 0.21% and finished near the lows of the day. The Russell 2000 jumped the most as the pullback in yields benefits small caps the most. It closed up 0.50% on the day, but it also finished near the lows of day. Despite the weak finish for markets, the VIX got crushed again as it settled down 6% at $14.89.
In yesterday's update I noted that it was likely that we would get a bounce in markets today after yesterday's sell-off as it would be unlikely that we would get a big enough gap down to open below key supports for the indexes. We got this bounce, but as I said it wasn't a strong finish so there is some concern here. For the Nasdaq, it did break through the new primary uptrend that it started yesterday and it recovered to close above it. However, it made a lower low so it still starts a new downtrend here and the problem is that it was a weak finish.
For tomorrow, the Nasdaq's new primary downtrend (white) will be support/resistance at about 26,375 which is above today's close of 26,331. If it can gap up above this 26,375 level tomorrow and close strong then it would essentially negate today's weak finish. If it can do that, then the 26,375 level would act as support on a retest and the next resistances to watch on a rally attempt would be at 26,775-26,800 from its prior uptrends (yellow and purple).
If the Nasdaq fails to get the gap above the 26,375 level tomorrow which is only about 0.2% away, then it will be resistance on a rally attempt. From there, the next support to watch will be from its prior uptrend (blue) which it broke below today would be support at 26,310-26,320. If this doesn't hold either, its new primary downtrend (white) will be the last daily support in play which will be right around 26,100.
The S&P gapped and closed well above the primary downtrend that it started yesterday. I noted that this was the most likely scenario which was why I was looking for that market bounce today. But, it still starts a new primary downtrend (white) for now and because of the weak finish it will also need another gap up tomorrow to open above this new downtrend which will be at about 7,718-7,719. It's not far from today's close of about 7,708, so it is doable. If it can get the gap above it, the 7,718-7,719 level becomes support and the next resistances to watch on another rally attempt will be at 7,730-7,735 from both of its next 2 downtrends (blue and orange). If it can break through these, then the last daily resistance will be at 7,780-7,785 from the top of this same downtrend (blue).
In the scenario where the S&P fails to gap above its primary downtrend (white) at the 7,718-7,719 level then this will continue to act as resistance for now. On a continued pullback, the next support to watch will then be from its next downtrend (orange) at 7,666-7,667. After that its previous uptrend (yellow) will be support at at 7,659-7,660 followed by its primary downtrend (white) at 7,635-7,640.
The Russell 2000 remained within its primary uptrend again today, so once again it doesn't start any new daily ranges. For tomorrow, its primary uptrend (white) will continue to be the first support level to watch at about 3,010. If it breaks through it, the only other daily support that likely comes into play will be its prior sideways range (blue) at about 2,978. Meanwhile on a rally its prior uptrend (purple) would likely be the only potential resistance in play at 3,085-3,090.
