In the past several days, the major indices have been hanging on to support by a fingernail.. until yesterday afternoon. A late day surge in crude and renewed inflation worries sent stocks reeling and the major indices below key support levels once again, settting the stage for further deterioration. With the number of distribution days beginning to pile up (3 in last 2 weeks and 5 this month by my count) its clear insitutions have been taking profits off the table in August, typically not a good month for the market. Despite the overall weakness, leading stocks have actually fared quite well (if you’ve been looking at the SelfInvestors.com Leading Stock index lately you’ve noticed that selling volume to the downside has been light), but if yesterdays move isn’t just a quick head fake, then it wont be long before market leaders take a significant beating as well. Don’t be on the wrong side of that move. Be vigilant about preserving cash for next move up. Happy trading!
Lets take a look at the charts.
The Nasdaq violated its intermediate upward trend line several days ago, but has been finding support at the 50 day moving average. With each day of distribution though, it becomes unlikely that the next level of support can hold. While, the Naz is hanging on to the 50 day, yesterdays high volume reversal indicates that support level is in danger as well, setting the stage for a drop to the next important level – 2100.
The Dow just flat out looks ugly. It broke key support around the convergence of the 50 and 200 day moving averages with heavy volume. There may be support around 10,200, but that hasn’t been a major level of support in the past. At this point, you certainly can’t rule out a 4 to 5% move to major support around Dow 10,000. I’d certainly be betting that the Dow will hit 10,000 before it hits 11,000 at this stage of the game.
The S&P also violated a key support level yesterday, when it broke below the area around support of the 50 day moving average and the upward trend line. The move makes it very likely that we will see a test of the next level of support in the area around 1190 – 1200.
Dow doesnt look ugly here, it looks like a fantastic buy.
Check out the ROUNDING dome formation on the Dow daily chart…
Rounding Tops are THE MOST BULLISH Chart pattern.
Read about them here…
http://www.coveredcallswins.com/chartpatterns/BestBullish&BearishPatterns.html
NYSE also just hit record short interest, these tell me Dow is ready for upside explosion here soon.
Stocks look great here for a buy
Big Rally ahead. Keep buying here
My apologies for approving these comments a few weeks late – I’ve been having problems with comments notifications. Anyway, I always appreciate others opinions. In hindsight you made the right call there – nice job! But there is no way I would have pulled the buy trigger at that point with the major indices breaking support. It was way too early for me.
As far as the rounding dome (I have not heard of that formation), I would agree that its (the Dow) carved out a similar formation. However, I would have been much more bullish here had that rounding formation found support at the key level there with light selling volume.
As it turned out, the market bounced back quickly, surprising many including myself. For me, the key turning point occurred on Aug 31st, when the major indices staged a high volume reversal (a day that also saw the Nasdaq get back above resistance of the 50 day moving average). That move was confirmed a few days later.