MARKET COMMENTARY

The bullish outlook for the markets is not as promising as anyone’s hoped for. In fact, the market can brace itself for a sell-off this coming week, despite of the positive mood for the strong rally in the past two weeks. Most of the indexes had a nice bull run so far. However, based on the indication of my Trend and Breakout (TaB) trading system, the indexes have not turned bullish at all. The Dow, for example, remained tamed. The volumes had been declining. Even if it is considered bullish, this state of market may not hold for prolonged period of time. The daily chart has been drifting sideways.

Again, it is more informative to view the long-term (weekly) chart to get a bird’s eye view of the trend. The weekly chart for Dow has reached the resistance of the 200-week moving average and stalling. Volume is dropping steadily. So far, all of the moving averages are still hovering above the current price level. Judging by the way the Dow is behaving, I won’t be surprised that it is beginning to drop again with a strong possibility of a breach below the 11,000 level. We have a similar situation for the SPX. You may refer to your own chart.

With the spinning top candlestick pattern appearing, we may have seen the peak of the current rally. What happens next becoming interesting and may be even profitable.

DJIA Daily Chart

On the weekly chart, it appears that we have found a double-top formation on Russell. The Russell is trading in a range of 650 to 765. I guess you we can set up a debit spread (Bear Put) from current level all the way to 650.

RUT Daily Chart

The NDX is forming a triangle pattern which suggests a breakout soon. In the mean time, I can only say it is trading in a range - sideways. Let’s watch this chart for now without betting any money yet.

NDX Daily Chart

STOCKS TO WATCH:

Watch out for housing and financial stocks to get hit again.

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