I updated the H&S formation in my last market commentary dated last Friday, May 25, which is always posted to the free list at Yahoo! Groups:
groups.yahoo.com
2001 May 25 trendVUE Market Commentary
Title: Do or Die Time, for the Major Indices
NASDAQ 100 Index
For weeks we have been following the development of the head and shoulders bottom that had formed. Last week, we wrote that it was our hope that the FOMC meeting would act as a catalyst to move the market one way or the other at the neckline of the pattern. After the FOMC meeting the market took off and broke the neckline to the upside but the move was short lived. In order to preserve the pattern together with the measured upside potential, the market needs to confirm that the topside of the neckline has become a new support zone right here, just above 1900 on this pullback.
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The chart below shows the idealized trajectory that the NDX needs to take in order to prove that old resistance has now become support after a breakout. If this pullback on the NDX is unable to confirm that the top of the neckline has become new support, this would set up a failure of the pattern.
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Going out by a time frame, we can see that on the weekly chart that the NDX is facing resistance from two points – the 20-week EMA and also the old swing low from January. In this time frame, all of the price action since the April low has been but a bounce in a downtrend in the big picture.
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Should the neckline fail on this pullback, it would bring the entire reversal pattern seen on the daily chart into question, and bring our attention to the fact that the move since April was only a consolidation, in the form of a rising wedge pattern, within a strong long-term downtrend, however hopeful it might have appeared. The job for the trader here is to be careful, and watch to see what happens
at this important juncture.
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S&P 500 Index
For the SPX, it is in a similar situation as the NDX. On any pullback, it is necessary to have old resistance confirmed as new support.
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The weekly chart shows that the bounce has been a 50% retracement of the move down from the all time high.
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Dow Jones Industrial Index
The Dow has reached long-standing resistance here in the 11,000 area and is finding sellers at the top of the trading range. Given that this area has held for two years as resistance, it is not surprising to see this. Should a new trend be emerging, it will be a self-evident "breakout".
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That was the end of the commentary. Intraday, we've been trading mostly from the short side since the little spike top last week:
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The test of top failed at the apex of the rising wedge on the S&P, and it's been downhill ever since...
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These last couple of charts were posted during live trading in our Trader's Workshop. |
