US equities opened higher this morning and are setting up for a sharp pullback based on technical analysis that uses trends, cycles, momentum, volume, market breadth and key resistance zones.
Take a look at the charts below for a quick look at what I see happening.
Bar Chart, Market Momentum Index
I look at this chart daily. In short, if its price is at 101 or higher, I expect the broad market to pause or pull back within the next day. It tells me if stocks have moved too far in one direction on a daily basis; if so, sellers (big money players) are likely to re-align stocks by taking profits or shorting during these times.
Stock Trading Above the 50-Day Moving Average
Here we can see that while the S&P 500
(INDEXSP:.INX) has been rising over the past six months, fewer stocks are trading above their 50-day moving averages. This means a smaller group of stocks is holding the market up and it’s just a matter of time before those stocks burn out and roll over as well.
SPY Swing Trading Analysis – Daily Chart
With the S&P 500 breaking down from its trend channel and testing a short term resistance trend line, odds favor sellers becoming more active and pulling the market down as they unload any remaining long positions and possibly get short the market. Both of these actions will put pressure on US stocks.
Big Picture Outlook
This chart is just to show you what is possible. I am not a perma-bear, nor do I want another bear market like this to happen. But knowing what is possible is important. Major market tops tend to take several months to happen. If this is the case, then it could be a wild and choppy market for the rest of 2013. Don't expect price to just collapse and free-fall for 18 months. Bear markets must be actively traded as they carry a lot of risk.
This week is do or die for US stocks. We need sellers to step in here and pull stocks down. With the S&P 500 trading at resistance, stocks being overbought on a short term basis, and the holiday week behind us (which typically favors higher prices), it is now time for sellers to become active once again.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.