Markets Ready to Roll Over?

DJIA - 7.90, -0.06% SP500 + 2.12, +0.15% NASDAQ Comp. + 14.33, +0.57% Russell 2000 + 2.73, +0.37% Oil closed at $127.35 up 75 cents I attended my youngest son’s high school graduation this afternoon. His senior class motto was the following: “Live life as if you were to die tomorrow. Learn as if you were to live forever.” --Mahatma Gandhi Give this idea some thought. See if it fits in your life. Ponder whether there is a principle that applies to the art of trading. I did and I am the better for it. I would like you to be the better also. The market rallied in this holiday shortened week. Only the DJIA failed to close higher for the fourth straight day. Come Monday you must trade the markets not your thoughts or the thoughts I am about to share. This market acts tired and ready to roll over. Does that mean the market is going to roll over? Not necessarily. However you want to ready if it does roll over and here is the technical evidence I am seeing Friday... The DJIA had an inside day, essentially a bearish harami and failed to close above its 50 DMA for the second straight day. The DJIA is trading below the 20, 30 50 and 200 DMA. The 20 DMA is pointing down. It is trading below the January/February resistance high that it traded above for three weeks. It failed to break above the R1 resistance level of the large black candle on May 21. The low on May 9 between the double top acted as resistance to yesterday’s advance and Friday the index made a lower high. This is a potential bear flag chart pattern. A bear flag of course is a short term trend continuation pattern. Also Thursday and Friday’s selling is in the resistance area of the 50 DMA. The S&P also formed an inside day on Friday that could be day 2 of an evening start pattern if the index moves down on Monday. While the S&P is above its 50 DMA and right on top of the 30 DMA, it is below the 20 and 200 DMA. It is a the R1 (May 21 large black candle) and 20 DMA resistance areas. The S&P is also forming a potential evening star pattern. The Nasdaq is technically stronger than the Dow and S&P. Still in an up trend that recently made a higher high and pulled back to an equal low. It is trading above its 20, 30, 50 and 200 DMA. On Friday it closed above the 200 DMA while forming a small spinning top. This could be a potential evening star if the index moves down on Monday. It is in the area of resistance of the last high on May 10 and could form a double top or slightly lower high. A potential bearish divergence exits on both the 2 line MACD and the MACD histogram. Remember this index is currently in an up trend. The Russell 2000 is also in an up trend making a new high close on Friday while at the same time forming an inside day that could potentially be an evening star if the index moves down on Monday. The Russell also closed above its 200 DMA on Friday while forming a lower intra-day high than Thursday. The Russell could also be forming a potential double top with a potential bearish divergence in both the 2 line MACD and the MACD histogram. The question seems to be: Will the DJIA and S&P take this market lower or will the Nasdaq and Russell pull the market higher? The indices moved higher this past week and that is bullish. The price action looked weak by the end of the week, which is potentially short term bearish. Mixed technical information is common at key pivot points…points where the market could move up or move down. That is where the market is right now. Remember, technical analysis is based on probabilities not certainties and there is always a small probability the market can defy all the technical, so you must remain mentally flexible. You must also be prepared to trade to the downside if this market or the individual stocks you trade roll over. There will be a brief post Monday morning but I won’t be posting again until Friday due to a family cruise in celebration of our two high school graduates this past week. I wanted you to understand what I was seeing on the charts so you would be aware of the potential of the market to move up or down from this key pivot point.

If you have access to Market Commentary, read what I wrote there at Friday’s close when it is posted on Saturday.

Today’s Action Moving Up: FSLR, CLF, SCHN, CF, MON, MOS, MTL, AGU, IPI, CNX, PCLN, DRYS, X, AAPL, FWLT, BTU, NUE, POT, MEE, BRCM, SOHU, AMZN, V, GRMN, JASO, USO Moving Down: STRA, DECK Intermediate Term Market Trend: Neutral Short Term Market Trend: Up