Last Week's Market Action

The markets dropped last week -- hard:

The S&P 500 fell 64, or 4.6%, to 1331 and is 15% off its October record. The Russell 2000 index of small stocks gave up 32, or 4.3%, to 699.

The tech-sector exodus sent the Nasdaq Composite Index down more than 20% from its Oct. 31 high at one point midweek, before buyers closed that gap to 19.4%. It ended the week down 109, or 4.5%, to 2305. It has fallen in six of the past seven weeks. The Nasdaq 100, meanwhile, is 20.8% off its late-October

If you look at the size of the multi-month drops you'll notice we're at or extremely near a conservative definition of a bear market.



The SPYs had a big drop at the open on Tuesday and continued in that trend for the rest of the week. But there is the possibility for hope, as the market formed triangle consolidation on Thursday and Friday.

Below I note that the QQQQs and IWMs may have formed a head and shoulders pattern, yet don't make the same call for the SPYs. While it is possible the SPYs formed a head and shoulders pattern -- I can see the possibility -- the SPYs simply look more like a downward sloping channel. I think of head and shoulder patterns as being a bit more extreme in their movements. But, that's a judgment call and I certainly wouldn't think calling the SPYs a head and shoulders pattern would be an outlandish call.



With the QQQQs note that Tuesday through Friday formed a pretty clear head and shoulders pattern. If you compare the head of this pattern to the head of the SPYs, you'll see a larger and more pronounced price action.



Also note the QQQQs formed a triangle consolidation pattern on Thursday and Friday.



The IWMs formed a head and shoulder pattern from Tuesday through Friday.



Also note the clear downward sloping channel.

Now that the Federal Reserve has stepped into the debate the bulls have a good friend. Any bad news can now mean there are further rate cuts down the road. This clearly helped the market rally when it was in its oversold position in late January.

But there is also plenty of ammunition for the bears, largely because the economic news for the last month or so has been terrible. The number of economists who are predicting a recession or saying we're already in a recession is increasing.

A head and shoulders pattern is a reversal pattern and could indicate the market is ready for a turnaround. I wouldn't be surprised to see the market trade in a small range for the next week or longer, largely because the shine of Fed action is still out there.