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Materials Stocks Are Testing Critical Support Levels
On July 31, we posted a piece suggesting that the basic materials sector was threatening a material breakdown. Our rationale was the proximity of the Dow Jones U.S. Basic Materials Index to a confluence of key Fibonacci Retracement levels. As we have mentioned before these levels reflect the market’s tendency to “retrace” market moves in similar increments. We have also mentioned before that, in our view, the strongest Fibonacci signals come when there is a confluence of various such levels in the same vicinity. This was, and is, the case on the chart of the materials index. Oh, and that “material” breakdown did come to pass.
That breakdown on the Dow Jones U.S. Basic Materials Index occurred at around the 300 level. Note how the following 4 Fibonacci Retracements drawn from key lows in 2009, 2011, 2012 and 2013 to the 2014 highs, aligned almost perfectly with each other in that level:
- 23.6% Fibonacci Retracement of the 2009-2014 Rally ~301
- 38.2% Fibonacci Retracement of the 2011-2014 Rally ~302
- 50% Fibonacci Retracement of the 2012-2014 Rally ~300
- 61.8% Fibonacci Retracement of the 2013-2014 Rally ~302
- Additionally, the 1000-Day (or 200-Week) Simple Moving Average is right in the vicinity as well.
We noted in that July post that:
Should the Fibonacci Retracement cluster around 300 fail to hold the index up, here is the next set of Fibonacci levels that the index would be likely to test (near 266, or 11% lower):
In the August mini-crash, the Dow Jones U.S. Basic Materials Index hit a closing low of…266. After bouncing for a few weeks, the index is once again testing that level.
Here’s a close-up look at the recent action.
That set of Fibonacci and other significant levels around the 266 area are the following:
- 38.2% Fibonacci Retracement of the 2009-2014 Rally ~265
- 61.8% Fibonacci Retracement of the 2011-2014 Rally ~266
- 2013 Lows ~266
- Additionally, the 500-Week Simple Moving Average is right in that vicinity as well.
Should the Dow Jones U.S. Basic Materials Index bounce off the 266 area, its first big challenge may come at the post-crash bounce highs near 286. After that, it would be the 300 area. The problem for this index is, every potential line or indicator of support on the way down is now going to act as resistance on the way up. So even if the 266 level holds for now, the index would still have its work cut out for the foreseeable future.
Should this 266 level give way, there is really no noticeable, solid support until the 2011 lows which would correspond with the 61.8% Fibonacci Retracement of the 2009-2014 bull market. That level is around 210, which would signify a loss of over 20% from current prices. That’s on an index that is already off 25% from its highs. Not good.
We ended the July post by saying:
…if the (300) level fails, the Dow Jones U.S. Basic Materials Index is likely to visit the next cluster of Fibonacci Retracement levels near 266. Would such a move be a byproduct of an acceleration of the global deflationary trend currently in place? Or would it be a catalyst for a broader market decline? That is yet to be determined. However, such a breakdown would not be welcomed news for a stock market that has already seen its share of bricks removed from the wall.
Well, that dire scenario played out, in the basic materials sector and in the broader market. A failure of the current key support area would signify a deepening of these problematic trends that have unfolded over the past month. And as bad as things have been this past month, a further acceleration could be devastating.
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They're about to test bottom.
Pink sheets, woo hoo!
Lets build a wall to utilize the material.
Thank you
Viffer for President - 2016
All this carnage in the real world will force EM central banks to sell dollar debt. Then its over.
Paging Million dollar douchetroll.......
It's all a big "FIB"...
NSAbook is down......
Millions of retarded morons now on suicide watch.
Zuck Fuckerberg and his army of useful idiots.
Charts look a lot like Emerging markets. RIP EEM.
Stop trying so hard. "Key support" has nothing to do with any of this shit anymore. It's off the map, fuxored, unwound, messed up, unnatural, demonically possessed, corrupted.
The only "key technical support level" now is the Planck Constant.
Oh and it wouldn't hurt ZH readers to familiarize oneself with the properties of the Schwarzchild radius. Our financial systems are approaching inertial criticallity and when that particular set of functional expressions implodes this whole shitstorm vanishes from our universe forever.
This is probably the most relevant article I've read recently re: what has been happening and what's likely to happen future case.
http://www.zerohedge.com/news/2015-09-04/imf-just-confirmed-nightmare-scenario-central-banks-now-play
By that you mean the "no willing sellers" QE conundrum. In the end, I don't get that part. It only plays if you think the CB need to buy something in order to inject fiat money into the system. That's a very particular technical limitation, isn't it. Because unless they are buying in PMs they do not in fact have to buy something for the money to materialize and add liquidity. The Fed can print the money and give it away in bound stacks from the corner of 20th and Constitution. Print it and just toss it out the window to rain down on the street into the arms of delighted passers-by who will spend it within minutes at Starbucks adding liquidity to that part of mythical Main Street.
Nor am I interested in arguments about why they could never do that, because they could in fact do that. It's paper with ink on it for fucks sake, very old technology been around for centuries. Print it, toss it out the window, watch what happens. You can then theorize about all the terrible repercussions that would ensue, but that's just guessing about macro economics and econ isn't even a science, just pseudo-religious hand-waving. Nobody would know in advance what would happen in a tightly coupled global economic and financial system if The Fed tossed money out a window into the crowd. Especially if we're trapped in a vicious deflationary vortex that is devouring so much fiat money value that if you set out to print the actual paper instruments to toss out said window in replacement you would need to quickly clear-cut all the forests in the world just to source the paper, and let's not even talk about sourcing the ink supply because that shit is based on crude oil.
And I meant what I said about the Schwarzchild radius. Something wicked this way comes.
"Daddy, why are all these people poor?"
"Because math, dear."
Perfect.
DOW 8.85%
Dow Chemical Co
DD 8.70%
E I du Pont de Nemours & Company
MON 8.68%
Monsanto Co
LYB 6.26%
LyondellBasell Industries NV
PX 5.69%
Praxair Inc
ECL 5.46%
Ecolab Inc
APD 5.03%
Air Products & Chemicals Inc
PPG 4.84%
PPG Industries Inc
IP 3.41%
International Paper Co
SIAL 3.11%
Sigma-Aldrich Corp
this is 99% US, so no EM exposure 5,7 and 8 are in the semiconductor business?
Huge stop run from 11:45 - 12:30 could be attributed to post-Europe close or Pre-Yellen optimism, but IMO was triggered when ALL 4 major indices bounced nearly to the penny from their Daiily Keltner 2.0 bottoms, a clasic spot for mean-reversion algos to attack. Perhaps the big houses who decide these things thought a pre-Yellen push toward recent lows was inadvisable.
Doesn't mean we can't end below those levels (though current HRLY stochastics ~20+ makes that less likely), but does show the move was pre-mixed and pre-measured, as Kool-Aid always seems to be ...
Sadly for shorts, I'd say the odds of a move at least partway toward Unch by 3:30 is 50% ..
The HFT's come out in full swing early and often this week and they have been at it all day and will make this end with a modest .49% decrease, when it should have been a 4% drop or larger. If not for the intervention; this would have already crashed to 2001 levels or even lower, but this is a slow burn.
The question is; how are they doing it. I believe they are placing trades and not executing them at the precise moment or pumping digital money and buying (I do not think so). We should have the option of placing trades at a specific price and TIME during the day, then we could review the situation and decide to pull the trigger or not to pull it at that specific TIME. That would add a new level to their HFT scheme's to deal with.
While it's annoying, after spending 4 yrs staring at every 15m bar of the market, I'm convinced that news doesn't matter, it's all envelopes around the 20MA in all time frames. Just closed a TNA long that, "fundamentally" I had no business being in, confident enough to dump my entire trading account in it. Took me years to avoid the psychology of worrying about "Yellen" or "econ data" and just trade the numbers, the key is discovering ST technicals that will forecast when the algos will traverse the volatility bands, getting good entries, often waiting hours, which time frame makes sense, etc., but I'm convinced their methodology has remained constant.
Wouldn't it be ironic if markets took an unexpected tank during the next week when world leaders will be all assembled together to talk about the future direction of the humanity and the planet?
Not saying it WILL tank. Just sayin'.
My little brother's fiancée tells me that while she was in line at a Timmy Ho's, some older guy told the girl behind the counter "the economy is going to collapse soon. Be ready."
The little coffee girl apparently looked at him like he was nuts.
Don't know about you guys but I am really going to enjoy being vindicated when the scoffers are in tears, and I'm sitting like King Tut on my stack of PM's (which may or may not have been 'lost' recently).
Speaking of fiancees, I wonder if I'll be able to pick up a nice 2 carat rock for dirt cheap in a few months?
The 2 carat rock will be priced along with the PM's; so the answer is NOPE; you should have already known that.
Calling ALL Central Planners, Calling the POOPE, Calling the MILITARY, & Calling the HFT's; all hands on deck we have a crisis.