Not surprisingly, Tuesday's late-day rally failed to generate any upside momentum. On the contrary, traders sold into strength of the modest bounce, causing the major indices to firmly plunge to new five-year lows. The Dow Jones Industrial Average fell 5.1%, the S&P 500 6.1%, and the Nasdaq Composite 6.5%. Small and mid-cap stocks fared even worse. The Russell 2000 nosedived 7.8% and the S&P Midcap 400 lost 7.4%. With the exception of the Dow, all the main stock market indexes closed at their dead lows of the day, month, and the past five years. Closing below 8,000, the Dow Jones Industrial Average set a fresh five-year closing low, but fractionally held above its intraday lows of October 10 and November 13.
Total volume in the NYSE increased 12%, but Nasdaq volume was roughly the same as the previous day's level. Prior to yesterday, the one glimmer of hope for bulls was the positive price to volume relationship the stock market has exhibited since its November 13 bullish reversal day. But higher volume in the NYSE caused the S&P 500 to suffer a "distribution day" that was indicative of institutional selling. Atrocious market internals means the selling was also extremely broad-based. In both the NYSE and Nasdaq, declining volume destroyed advancing volume by an unbelievable margin of approximately 50 to 1! In the NYSE, there were more than 3000 declining issues, with only 200 advancing issues. The Nasdaq adv/dec ratio was equally disastrous.
Over the past two months, we've had two profitable trades in CurrencyShares Japanese Yen (FXY). The first trade was a breakout entry in October, and the second trade was a buy entry on the subsequent pullback to support in the beginning of this month. In both cases, we sold into strength of the rallies that followed. Yesterday, we bought FXY again, after it broke out above a short-term base of consolidation. This is shown on the daily chart of FXY below:
The red horizontal line on the chart above shows the short-term consolidation of FXY. We bought at 103.77, after FXY broke out above that line. The blue dashed line is the intermediate-term downtrend line from the October high. Since FXY closed just above that level yesterday, our next price target for FXY is a test of that October 24 high. If it follows through to the upside, our projected timeframe for such a move is 3 to 10 days. As per our November 19 commentary, we're generally not keen on new swing trade entries right now, but FXY may be an exception because it has been trending pretty smoothly. Notice, for example, how well the 20-day exponential moving average (the beige line) has acted as support.
