Wednesday, May 7, 2014

Stock Market is starting to look scary

This post will be less talk and more charts, so lets get down to it.  Through out the charts, take notice of the divergence in the indicators vs price.

Common theme; price has been consolidating and indicators are headed lower, and getting close to the point where they are in correction territory.  We have not yet gotten a signal from the moving avgs rolling over yet, but everything else is setting itself up for a break lower so far.  On to the SPX, which has a similar picture...

Same picture essentially other than hitting slightly higher highs this year, which the Dow failed to do.  Now lets move on to the NASDAQ, which is a completely different picture, although equally as ugly looking.

Now this looks nothing like the other two.  We can see while the other two indices seem to be reaching a point where they are unable to move higher, therefore leaving the alternative as a possibility of there next move, the NASDAQ has already shown significant weakness, and it has translated in the form of a head and shoulders top, with a neckline at the 4000 level that has been holding so far.  We can also see the divergences in RSI and MACD that are present in the other two, are much more pronounced in the NASDAQ.  MACD has already crossed down hard below the zero line and has rallied meagerly almost back up to the zero line, but looks like it will fail to break above it before it heads lower again.  This crossover will likely coincide with a break in price below the 4000 neckline that has held up so far.  A break of such will likely be what triggers the other indices to begin to collapsing as well.  Pay close attention to the NASDAQ over the next few weeks, because it will likely spell out where all stocks are going to be headed in the near future.

-Jonathan M Mergott

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