Let’s take a rapid look at the major US Indexes as we start the new week:
First, the NASDAQ Daily:
- Bullish Divergence preceded the recent 200 point rally (divergence is now complete)
- Price rests at the falling 20 period MA â€“ bearish
- Price is in a confirmed downtrend
- Volume has accelerated majorly and has made new monthly highs
- Price could be forming a daily bear flag pattern
Next, to the NASDAQ Weekly for an interesting pattern:
- The mid-line of the triangle represents the support/resistance barrier the market has faced since 2007.
- The 2,550 level represents significant resistance that would be very difficult to overcome
- Price inflected (bounced) nicely off the 200 period weekly MA, which should serve as support
- Price is in “no-man’s-land” right now, as it is virtually equidistant from the three key moving averages
- The weekly chart is also in a freshly confirmed downtrend
- Price made a new weekly momentum low (not seen for years) – bearish
The S&P 500 is showing a near identical pattern, as is the Dow Jones:
Where do we go from here?
If the bear flag setup plays out on the daily chart, then the major Indexes could test recent market lows.
If the bear flag fails, then price could travel higher to test 2008’s highs (which are a distance away).
The structure hints at more bearish news on the charts than bullish, but we know the sentiment out there (extremely bearish) and realize that the market often acts against the opinions of the majority, but recall that sometimes the majority is right, especially at the ‘middle’ of the move when everyone begins to catch on.
It will be difficult to forecast which scenario is correct.