By Tom Aspray
The selling Monday was quite relentless, with many of the major ETFs and stocks opening lower and declining further throughout the day. The market internals for the NYSE were solidly negative, with 721 stocks advancing and 2261 declining.
Many are explaining the market drop on the news about that Harley-Davidson Inc. (HOG) seeks to move some manufacturing overseas in reaction to the new tariffs. However, even before that news broke, the market showed warning signs last week that is was vulnerable.
As I pointed out in my weekend article, “Three Warning Signs Of A Bear Market,” “the weekly chart of the Spyder Trust (SPY) […] reveals that the Friday close was below the prior week’s doji low at $273.35, therefore generating a weekly doji sell signal.”
As I discussed over a year ago in my article on “Candle Magic”, a doji is formed when the open and closing price for a day, week or month is nearly the same. These are most effective on the weekly and monthly data, as they are interpreted as a sign that the market is indecisive, with the bullish and bearish forces in balance.
Tom Aspray -ViperReport.com
In my Sunday review of the major markets, I noted that the Invesco QQQ Trust (QQQ) had formed a doji the prior week, as it had opened last Monday at $175.49 and closed on Friday at $175.32. The QQQ has been leading the market higher: as of Friday’s close it was up 13% for the year, while the SPY was up only 3.8%.
The doji low was $173.71, so a Friday close below this level will generate a weekly sell signal. It is important to look at the advance/decline analysis when evaluating the doji formations. The Nasdaq 100 Advance/Decline line made a new high last week (line b) as it moved well above the March high. The fact that the A/D line held above its WMA and major support (line c) pointed to the completion of a bottom on May 12.
It is also important to note that the A/D lines for the NYSE, Russell 2000, S&P 500 and S&P 1500 have also made new highs. This is a sign that while Monday’s decline will likely lead to further selling over the near-term, there are no signs of an intermediate-term top.
