Dow Jones, Caterpillar, and Goldman Sachs

Aug 28, 2007: 9:16 PM CST

What do these three stocks or indexes have in common? Each is showing a strong impulse sell move that is just confirming and is underway.

First, let’s look at the Dow Jones Index:

Observations:

  • Price is in a confirmed daily downtrend.
  • Price failed to muster enough strength to test the falling 50 period MA
  • Price rose on significantly low volume – an enormously bearish sign
  • The next likely play is to test the rising 200 period MA, at Dow 12,900.
  • Resistance appears to be in the Dow 13,400 to 13,500 zone

Caterpillar (CAT)

Observations:

  • I have annotated a recent head and shoulders pattern which is resolving itself
  • Price rallied to retest the breakdown zone from the head & shoulders pattern
  • A strong short sell trade occurs at the test of this area
  • Confirmation comes from resistance at $77 from the falling 20 period moving average
  • Price is in a technically confirmed downtrend
  • A future play would be to test the rising 200 MA at $70

Goldman Sachs Group (GS)

Observations:

  • Price has been in a confirmed downtrend for some time now
  • Price just completed a ‘swing up’ to retest the falling 20 period MA, and has failed
  • A specific “Impulse Sell” trade occurred with the new momentum low and the rally to the 20 period MA
  • The objective for the “Impulse Sell” trade is the most recent swing low at $160 (stop above $180)
  • The New Momentum Low hints that a new price low is yet to come (“NML” at bottom right of chart)
  • Price rose recently on a swing-up on lower volume – bearish

I’ll be watching these to see how they play out. Today’s action was discouraging for the bulls. Volume surged into the last hour as funds and traders liquidated millions of shares as a result of the release of the Fed’s Minutes.

With the wind of the market at the backs of the bears, the greatest probabilities for trading success appear to be coming on the short-selling side now.

Do not try to fight the tide until we get confirmation that it has turned.

Be safe.

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