Promising Short-Term Trend Falls Apart

A new short-term uptrend looked so promising on Thursday, but then on Friday, it fell apart. Bad news, a President's sensitive ego and the weak seasonal period all came together to undermine stocks.

The recent price pattern of the technology ETF has the look of a bear flag. I think this would mean that the market needs another strong push lower before it finds support.

Stocks are oversold as shown by the PMO index below, and this means it is too late for me to be selling unless a stock that I hold is really breaking down. At this point in the short-term cycle, I should be looking for opportunities. It's hard to imagine being a buyer after Friday's sell-off, but that is what works for me.

Here is a comment in this week's post by Mike Burk.

The indices have about 3 weeks to hit their old highs before a nasty seasonal downturn begins.

Changing focus, what's happening in the longer-term?

This trend is intact but the recent price action is choppy. The December and June market lows look important technically.

I went back to the1999 through 2002 time period to see how the market behaved as prices declined from their peaks.

Three things jump out to me.

1) There were an awful lot of net new 52-week lows for the year and a half prior to the peak, and near the peak they are dramatic. Once stocks broke down, the elevated level of net new lows persisted for half a year.

2) The 40-week average did a really good job of containing the downtrend after the peak but prices were frequently violating it prior to the peak.

3) When the peak occurred, there was the look of a double top and then a clean break below the 40-week.

Here is a similar view, but of the 2006 through 2009 time period.

1) This time, there aren't anywhere near as many new lows in the year and a half prior to the peak, but near the peak, they are again dramatic.

2)The 40-week works really well containing the downtrend similar to 2001, but the uptrend is also fairly well contained.However, prices start to violate the 40-week just before the top is in for the market.

3) When the peak occurs, there is the look of a head and shoulders top, and again it is followed by a clean break of the 40-week.

1 2
View single page >> |

Disclaimer: I am not a registered investment advisor. My comments above reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.