Something In The Air

Now that the Dow Jones Industrial has hit the 10,000 target, and the SP500 reached 1100, there seems to be something in the air that a change is coming for the market. What that change might be is the question to be answered. The DJIA is hitting major resistance in the 10,100 level, and the SP500 can’t seem to be able to move above 1100. From the daily price chart, the uptrend started in March appears to be intact. But looking at the intraday hourly price chart, the uptrend in the short term appears to be losing strength and starting to rollover toward lower support levels. The DJIA formed a triple top in the intraday chart and tested the 9940 for support numerous times since it failed to break above 10,120. One would make a case that the DJIA could be setting up to be range bounded between 9940-10,120 if it wasn’t for the divergence of the MACD, the rolling over of the 5 day moving average and the price is below the 5 day moving average. Instead, with these negative technical, the odds are in favor of a pullback to the 9780 level in the short term.



A similar trading pattern also appears in the SP500 intraday chart. The SP500 failed to break above the 1100 level and formed a double top. Since its attempts at breaking the 1100, it has retreated to test the 1075 for support and filled the October 14 opening gap. The price is currently below its 5 day moving average, and its 5 day moving average is trending down. The divergence from MACD along with the price level and the direction of the 5 day moving average put the odds in favor of lower prices in the short term. The nearest support level for the SP500 is the October 8 opening gap near 1058.



The Dow Jones Transportation index has been hitting the 4050 resistance for over a week and finally rolled over and broke below the 3850 support level. The next nearest support level is 3750. If the DJT is any indication of what’s to come for the DJIA and the SP500, then we should expect the DJIA and SP500 to break their support at 9940 and 1075 respectively.



While the Nasdaq 100 still appears to be trending higher, some of the closely watched tech stocks’ recent price behaviors put this uptrend in question. Its MACD is showing divergence, indicating a possible change in price trend. From the intraday hourly chart, the support level to watch is 1742. If it breaks below this level, next probable support is 1710.



From the intraday charts, they show the market could be pulling back in the near term. Whether this pull back turns into a reversal is anyone’s guess at this time. I mentioned in my last post that there seems to lack the enthusiasm when the DJIA hit the 10,000 target last week, and this lack of enthusiasm indicates very little sideline money was lured into the market. The market will not terminate this uptrend until most of these sideline money are in the market because the market will not give anyone the satisfaction that they have out maneuvered it.

There are only two possible ways to lure some of these sideline money into the market. One way is for the market to climb higher to force the skeptics to jump in fearing they might miss the rally once again. The second way is for the market to pull back to a lower level to give the skeptics the feeling they are getting in at a bargain price.

Whatever is in the air, I believe the latter is the most likely scenario to lure those sideline money into the market. How low the market will go to lure the sideline money in is one big question mark. The possibility of a reversal instead of a pull back is always in the card. So I will continue to be cautious, and if an extensive pull back materialize, I will start taking some short positions on this leg down.