We've had some pretty weak action in the broad markets over the last few days. Volume has been anemic showing little demand for stocks. Resistance levels could not be taken out. We had a narrow range bar on 6/26. Breakouts from narrow range bars will often show range expansion. When the breakout fails without range expansion, oftentimes the range expansion will occur in the opposite direction. Based on the futures this morning after the jobs report, it certainly looks like we will see downside range expansion.
If the SP500 falls through the 50dema, around 900 on the cash index, I expect an initial move down to the 875 area followed by a rally back to the 50dema lasting 1 to 4 days. After that rally is complete, the SP500 should move down to the 840 to 845 area to complete the correction. 840 is my HS Top target, and 845 is the 38.2% retracement from the March low.
If that zone of support does not hold, then the next levels of support are 775 to 800. I am not sure at the moment what the pattern will look like if that happens. It depends alot on how long its takes to get there. We will just have to see how it all unfolds. As Adam Hewison has pointed out in his recent videos on the SP500, as long as it remains above the 783.32 level, the 3 month trend will be up. The 790 to 810 area could be a low risk buying opportunity. Likewise, for the Qs, a move to the 30 to 32 area could be a buying opportunity as well with a stop below the 3 month low of 29.79.
Unless we see a major reversal to close higher today, it looks like a break below the 50dema and the HS Top neckline is imminent.
1 comment:
Although the SPX/DJI haven't broken their H&S necklines OIH & XLE may be better leading indicators.
A USDollar bounce will put pressure on commodities & therefore the SPX will be weaker than the Nasdaq. OIH & XLE broke necklines on H&S patterns today. I think the XLE is particularly promising because the neckline is downward sloping.
Bears have two weeks to show their mojo.
Regards,
dave
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