Major market indexes were blindsided on Tuesday when Fitch Ratings lowered the U.S. credit rating to AA+ from AAA. The last time this happened was in early August 2011 when Standard & Poor's lowered the U.S. credit rating to AA+. That led to a sharp market sell-off as it did for the market on Wednesday following the Fitch downgrade news late Tuesday. A volatile trading day ensued on Friday after a lighter than expected Bureau of Labor Statistics jobs report of 187,000 new non-farm payrolls vs. expectations of 200,000.
An early gap-up open failed within the first 15 minutes of the trading day as the NASDAQ Composite reversed into the red after a strong triple-digit point move at the open. It then found its feet and melted up to new intraday highs before rolling over in the final two hours of the day to close in the red. On the daily chart below, the spastic intraday dance is less noticeable as it shows the index reversing at 10-dma resistance to close below the 20-dema and at a lower closing low off the peak of nearly three weeks ago.As we noted in an earlier Market Lab Report this week, back in August 2011 following the S&P downgrade of the U.S., gold rallied sharply. This time around in 2023 gold broke below its 50-dma and stalled at 50-dma resistance to end the week on Friday as the daily chart of the VanEck Merk Gold Trust (OUNZ) shows below. Silver, not shown, also trader lower on Friday as it now joins gold beneath the 50-day moving average.
Bitcoin ($BTCUSD) is now living below its 50-day moving average where it reversed badly on Wednesday. This looks to be setting up to move lower, perhaps in a test of the 200-day moving average just below the $27,000 level.We reported on an undercut& rally (U&R) long set-up in Nvidia (NVDA) on Wednesday. That came after a breach of the 10-dma and 20-dema that were also technically short-sale entry triggers. NVDA then rallied back up as far as its 10-day moving average on Friday where it stalled and reversed before triggering another short-sale entry at the 20-dema. NVDA ended the week just below the 20-dema and should be watched closely for a possible 20-dema violation which would then serve as a selling guide based on the Seven-Week Rule detailed in our book, Short-Selling with the O'Neil Disciples.
MongoDB (MDB) and The Trade Desk (TTD) are showing signs of wavering in the face of this week's market sell-off. MDB reversed hard on Friday as selling volume expanded from the prior day. It closed just below the 20-dema which triggers a short-sale entry using the 20-day line as a selling guide. Note that MDB failed on a breakout attempt nearly three weeks ago so is technically a late-stage failed-base short-sale set-up in progress.
Alphabet (GOOGL) reversed on Friday to close below its 10-dma. This could play out as an aggressive short-sale entry as the stock also drops below the 129.04 left-side peak in the prior base as well as the 128.32 intraday low of last week's buyable gap-up (BGU). Meta Platforms (META) also reversed on Friday but held support at the 10-day moving average. If this past week's market sell-off continues, watch for any break below the 10-day line as a potential aggressive short-sale entry with the idea of seeing a relatively quick and subsequent break below the 20-dema as a second short-sale entry trigger.
Microsoft (MSFT) is the clearest example of a short-sale set-up among the three. It had already broken below the 50-dma earlier in the week, so Friday's rally back up into the 50-day moving average set up a simple entry into the rally as close to the 50-day line as possible, at which point MSFT reversed and closed near the intraday lows.
The Market Direction Model (MDM) remains on a BUY signal. Selling pressure on the NASDAQ Composite continues to mount though there was no distribution day on Friday despite the clear market reversal. The index has had a cluster of higher volume down days over the last 20 trading days. It also logged a lower high and a lower low for the first time since March. That said, the lower low in March was the low before the market rallied once again. The question is whether the AI-meme stocks are starting to top or perhaps trade sideways before rallying again. Further analysis of these stocks will be forthcoming.