Markets Continue their Downward Arc

Jun 18, 2008: 10:13 AM CST

Today brings more selling into the marketplace, which represents a continuation of the interesting, clean arc price has recently formed. Let’s look at it.

The Dow Jones has fared the poorest of the four major US Indexes:

You can see the clear arc from early March until present that price has formed, as momentum has cleanly and effortlessly shifted from the buyers (bulls) to the sellers (bears).  In late May, I had a target for the Dow to test at least 12,000 and price is testing that area today on a new downswing in price.

It is possible the index could test its March lows, and a failure at that level would be devastating for the bulls.

Notice the negative momentum divergence which is resolving in the market with lower prices.  Momentum continues its downtrend as well as price.

The Russell 2000 has fared better than the other major indexes, but let’s look at the NASDAQ which is also in the process of breaking down and beginning a potential new arc lower.

The negative momentum divergence also preceded the reversal, as price failed to climb above its falling 200 day moving average.  The index formed a double top at 2,550 and appears likely to continue its newly confirmed downtrend.  Price has formed a lower high and lower low, and now trades beneath all key moving averages, assuming the price will close beneath the 50 period EMA today.

Keep caution in this market, and pay close attention to open long positions.  There is still money to be made on the long side in select areas, but the broader market trend appears to be reverting itself to the downside.

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