Last week the stock market had a week of big moves with a small net change. The S&P 500 (SPX) fell 13 points on the week to 2919, a decrease of 0.4%. Stocks tanked 3% on Monday, later recovering over the next few days. Yet based on market cycle patterns, we expect more near-term risk, as I pointed out in the latest Market Week show.
The trade war between the US and China continued to escalate on Monday when the Chinese government allowed its currency to breach the key psychological level of 7 Yuan to the dollar. But the currency then only chopped around for the rest of the week, which may have helped the stock market to recover.
S&P 500 (SPX) Daily Chart
Our approach to technical analysis uses market cycles to project price action. Last week, we anticipated a rebound and the SPX hit our resistance zone, as shown on the chart above. This week, our analysis suggests that the SPX will fail, with potential for at least one significant declining day.
Transocean (RIG) Stock Weekly Chart
Taking a look at an individual stock that moved significantly last week, offshore driller Transocean (RIG) fell by 18% to $4.33. This occurred after reporting an earnings and revenue miss during the previous week, as oil fell significantly and trade tensions worsened.
Based on its market cycles, we see more downside risk for RIG in the coming months. The stock is already in the declining phase of its current cycle, with several months to go. To make matters worse, the stock has broken down from the low at which it started the cycle, which is a bearish indicator. We see this risk continuing through September.
For a more detailed analysis of both of these charts, check out the latest episode of the askSlim Market Week show.