Weekly Index Fly-by

Jun 30, 2008: 10:05 AM CST

With a new week upon us, let’s take a quick look at where the major US Indexes stand.

Dow Jones:

The Dow has violated its 200 day moving average, and volume has accelerated as price has fallen through June.  Price also has formed a new momentum low on the chart – in real terms, this means that the distance between a 3 period and 10 period exponential moving average is greater than 400 points.

Price is indeed in a confirmed downtrend, as evidenced by the series of lower lows and lower highs.

Also, price has completed its ‘measured move’ pattern which resembled a bear flag (not drawn on this chart, but drawn on the S&P 500).  As bearish as it may look, recall that prices never go down (or up) forever or even indefinitely – there are always counterswings.

NASDAQ:

The NASDAQ actually created a larger ‘measured move’ target, which appears to be only half-way complete.

Volume has been relatively flat since March 08, but appears to be increasing as price tests lower levels.  The 200 day moving average could provide temporary support, but if the ‘measured move’ is the dominant pattern, expect price to test the 2,050 levels not seen since 2006.  It would be remarkable if the bulls could defend price here at the 200 day average.

S&P 500:

Looking very similar to the Dow, the S&P 500 chart also is just shy of completing its measured move (bear flag style pattern).  Price also has violated the 200 day ‘line in the sand’ moving average which some funds and investors use as a ‘benchmark’ to determine whether or not a stock (or index) is in an up or down trend (especially for strategy testing where ‘trend’ needs to be defined objectively).

Price is also shy of making a new momentum low, and is testing new low territory (not seen since 2006) on increased volume.

The larger structure of the weekly charts on the US Equity Indexes is not promising for the bulls currently.  This shortened week of potentially low volatility could create a large swing, but I would suppose that not much – save a large economic announcement – will happen this week, so that traders can digest what’s happened last week and throughout June.

“End of the Quarter” Window Dressing officially ends today, so there may be a slight effect of this pattern unwinding into the new quarter as funds and traders start afresh, or at least try to do so.

July brings in a new month and a new quarter, and could prove to be interesting.

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