The stock market sank on Friday after President Trump stated he will impose a 100% tariff on all imports from China after the country announced it was tightening its exports on rare earth materials. It was the fourth worst session of the year for the major indexes aside from April’s volatility.
The Nasdaq closed at 22,204 (-3.5%) after testing a low of 22,193. Support at 22,000 held. New resistance is at 22,500.
The S&P 500 traded down to 6,550 and key support while finishing at 6,552 (-2.7%). Resistance is at 6,600.
The Dow settled at 45,479 (-1.9%) with the low at 45,470. Support at 45,500 failed to hold. Resistance is at 45,750.
Earnings and Economic News
Before the open: Fastenal (FAST)
After the close: None
Economic News
None (government shutdown)
Technical Outlook and Market Thoughts
For the week, the Russell fell 2.1% and the Nasdaq was down 2.5%. The Dow sank 2.7% and the S&P gave back 2.4%. Year-to-date, the Nasdaq is up 15% and the S&P has gained 11.4%. The Dow is higher by 6.9% and the Russell is up 6.8%, for 2025.
The uptrend channels for the major indexes started to crack on Thursday with the Dow giving an early warning signal. We noticed this in our midnight chart work and homework and had previously mentioned how the S&P had been riding its uptrend channel all month.
Friday’s damage cracked the first waves of support for the major indexes but the Russell 2000 failed to hold two levels of key support. Out of the major four indexes, we have been focused on the small-caps the most as we have been highlighting a possible four-year triple-top breakdown.
All of the major indexes pretty much experienced a double-top, or triple-top, pattern coming into 2025 after key resistance levels held last November and in January and February. The big difference is the time frame as this played out over four month for the S&P and the Nasdaq, not four years as it is currently with the Russell.
The Dow Transports fell out of a two-month 400-point trading range while closing below its 200-day moving average. Backup support at 15,250 failed to hold and is now near-term resistance. Closes below 15,000 and the August low at 15,054 would be an ongoing bearish signal. We said the Transports can often provide early clues on the Dow’s trends and Friday’s action was bearish.
The Russell 2000 tagged an all-time high of 2,501 on Monday to finally clear our February 23rd, 2024 at 2,500. We talked about the importance of the index holding this level for several sessions while also pushing higher highs towards 2,525-2,550. That didn’t happen with a four-year triple-top breakdown now in play.
Shaky support at 2,400 failed to hold into the close and is now resistance. The low tagged 2,393 and opens up additional risk down to 2,375-2,339. However, if futures hold up, the index could test 2,300-2,275 and key support from mid-August.
The Nasdaq did trade to a fresh all-time high of 23,119 on Friday morning with lower and fresh resistance at 23,000-23,250 getting split. These were our revised price targets from August 11th. We said if 23,250 was cleared a run to 23,750-24,000 could come. Stay tuned.
Key support at 22,500 failed to hold with 22,000 and the 50-day moving average now in focus. Futures are showing an even steeper drop to 21,500-21,250 on Monday’s open.
The S&P 500 tagged an all-time peak of 6,764 on Thursday to clear the upper end of our August 11th price targets at 6,700-6,750. This was raised from our February 2024 price targets of 6,350-6,500 when the index was at 5,088. We said if 6,750 was cleared and held for multiple sessions, additional momentum could push the index up towards 7,000. That price target is now on hold as there was only the one day close above 6,750 and that was last Wednesday.
Fresh and upper support at 6,550-6,500 held on Friday’s late day low. If the latter and the 50-day moving average fails, downside action to 6,350-6,300 is likely a given. In fact, the S&P futures are down nearly 200 points as we head to press and are showing these levels coming into play.
The Dow came within shouting distance of our August 11th price target at 47,250 but stalled after peaking at a lifetime high 47,049 on the previous Friday, October 3rd. Our Price Target from February 23rd, 2024 for the blue-chips remains at 50,000.
Major support at 45,750 and the 50-day moving average failed to hold on Friday’s fade to 45,470. This puts 45,000 on the bears map but Dow futures are showing. ongoing losses towards 44,500-44,000.
The Volatility Index (VIX) closed above 20 and a level we have been warning about over the past two months. There is now upside risk to 22.50-24 with Friday’s top at 22.44. A close, or move, above 30 would cause major selling pressure.
Of course, the close above 20 was the media’s main focus and the last one came on August 1st following the jobs report. The index nearly recovered 17.50 the following Monday and by Wednesday the VIX closed below this level. The first hurdle for the bulls will be to get the index below 20 and then 19.50-19 and the 200-day moving average.
The relative strength index (RSI) levels for the major indexes all fell below 50 on Friday and levels that were stretched from the August 1st pullback. Monday’s weakness could push the RSI levels towards the 30 area and typically suggest oversold conditions. The 70 level is considered overbought and where the action stayed throughout the summer.
The August 1st and the September 2nd market dips were quickly bought by Wall Street and the algorithms. If intraday buying comes in and the RSI levels bounce off 30 on Monday, there could be a very quick market recovery.
The third-quarter earnings season starts on Tuesday with the Financial sector coming into the spotlight. This could add another layer of volatility over the next month or so, especially if corporate America misses estimates or starts to lower guidance.
We have been mentioning September AND October can be rocky months and this type of seasonal volatility is nothing new.
