Technicals | Jun 10 2010
By Rudi Filapek-Vandyck
There's a public discussion going on about whether the recent sell-off in equities marks a serious retracement inside an ongoing bull trend, or whether we are witnessing the transformation into the next bear market phase, reports the TechWizard.
He is of the view that the outcome is yet to be determined and that the next three months will be key.
By the end of August, reports the Wizard, we should all know whether the Dow Jones Industrial Average should be renamed “Down Jones” as the average might be on its way to 7000 or whether the average will have set its sights on reaching for 13,000 instead.
During these three months it remains of key importance the DJIA remains above 9900, says the Wizard. If this proves to be the case, a relief rally can take off any time. Alas, last night the level was punctured, but only slightly so.
In case 9900 proves one hurdle too far, the Wizard believes we could see more selling pressure instead, pulling the average towards 8200 (next level of support).
A relief rally remains a genuine possibility though and the Wizard notes any such rallies will find resistance at 10,700 and 11,200. Any such rallies, he believes, are poised to complete a bearish head-and-shoulders formation on price charts and thus ultimately indicative of a change in underlying trend.
Adding to the Wizard's bearish view is the fact the 20 moving average is now above price action, while pointing south. This, he says, implies the 20 M/A will now act as overhead resistance. The TechWizard reports his proprietary trading system is suggesting we are about to witness a change in trend for the US equity market.
Regardless, the next three months remain critical in establishing the trend for US share markets, the Wizard maintains. If the bulls fail in re-establishing the uptrend, the bears will take control and likely push US markets back to the lows last seen in the first quarter of 2009.
Were the bearish scenario to unfold, the Wizard predicts US share markets will revisit the Feb-March 2009 lows sometime in 2011.
The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au The views expressed are his and not FNArena's (see our disclaimer).
