First of all, congrats to Goldman Sachs, now the largest component in the Dow Jones Industrial Average.
The last time a bank headlined the Dow was JP Morgan back in 1998.
That’s pretty cool, but that’s all it is. Just a fun fact.
I would say it’s a sign of the times that a tech stock didn’t fill the shoes of UNH, but the Dow is a bit funky in the sense that it is price-weighted instead of cap-weighted.
Speaking of Papa Dow, let’s talk about what’s next for the major averages following the latest beating for US equities.
All the large-cap indexes violated their VWAPs anchored from the April 7 pivot lows this morning. They all tested these levels and held just last week.
That’s been the line in the sand for me as far as a retest of the lows is concerned.
With every day the S&P, Nasdaq, and Dow are below these VWAPs, the higher the likelihood we’re headed back to the lows from a few weeks ago. In fact, it probably happens pretty fast.
On last week’s live stream, we discussed our broader market outlook and pounded the table on the importance of the VWAPs from the pivot lows holding.
We said if they get taken out, we’re heading lower. That happened this morning, and stocks tanked all day before recovering a bit in the final hour.
Here’s a zoomed-in look:
If this damage isn’t repaired immediately, expect the selling to continue with the next stop at the early April lows.
And it’s actually a lot more than just a short-term low. These are monster levels as they also represent the prior-cycle highs.
You need to zoom out a bit to show the true significance of these polarity zones.
370 in the Dow $DIA
405 in the Nasdaq $QQQ
480 in the S&P $SPY
It’s where these indexes peaked and rolled over back in early 2022.
This would mean another 6-7% of downside left in SPY & QQQ, but only about 2.5% for DIA.
Without a swift reclaim of those VWAP levels, that’s where things are headed.
And the real test is what happens when we get there.
Not only is there serious price memory from the prior-cycle highs, but the primary trend VWAPs also line up there for all the major averages.
This means that the average buyer since the beginning of the bull market will be underwater, or losing money, on their position. It is as important of a level as you will find.
Here’s a look at the S&P 500 with the VWAP anchored from the bear market low in 2022:
Notice how this VWAP put a floor in the corrective waves from Q1 and Q3 2023. Can it do it again this time?
If not, I expect the current selloff to get much worse before anything gets better. This kind of price action would jive with a much deeper and darker bear market than the one we’re in now.
Hold onto your seats and obey your VWAPs. They never let us down.
And don’t worry about the bear market. In the event that’s where we’re going, we’ll get short at these big levels just like we did in early March when the August VWAPs gave way.
We had an average excess return of over 500% and a perfect win rate with our shorts. We discussed it all in last week’s special livestream.
