Tuesday, June 29, 2010
Death Cross Approacheth
After the 200 day moving average (DMA), which we bumped against, briefly broke above and then fell below (a False Break), the next widely watched technical indicator is the Death Cross when the 50 DMA crosses back over the 200 DMA. We are perilously close to that in a market with huge downside momentum. (Chart courtesy Doug Short.) A Death Cross confirms the change of trend to a wide swathe of investors.
A second widely trumpeted technical pattern is a large head & shoulders between the first shoulder in January, the head in April and the second shoulder in June. The right shoulder slumped at 1131 from the left shoulder at 1150, and today poked below the neckline at the Sp1045-1041 level. Goldman this morning was setting the bar at Sp1040, saying if we broke below the next stop would be Sp865, calculated as the delta from neckline to head (1040 to 1220) as the minimum level to fall, or 180 pts down to the Sp860 range. If it fails to crush through, it turns a bearish setup into a bullish one. (Chart courtesy The Big Picture.)
EWI put out a special STU tonight. They are in their element, as the next wave down appears to be unfolding, and the elliott waves tend to give much better guidance in an impulse (down or up) than in a correction. The market today unfolded under their prime count - and if you have followed this blog during the Hope Rally, you will immediately recognize the change: during the corrective rally, the alt counts tended to be realized, but now we should see the prime counts give better direction.
They note how today was an intense selling day. their wave count has us in the 3rd wave down, the most intense, and downside volume should accelerate - as it is beginning to. A dead cat bounce is to be expected, but for bulls who try to pick a bottom, or play a possible failed head & shoulders with a pop back above the neckline, a word of caution: unless we have that bounce by the end of this week (eg the turn of the month & quarter), we might see the sort of falling off a cliff that characterized 2008.
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