Sunday, March 14, 2010

Equity Market Update

The March 2nd update stated that March 17th could be a significant time period for the equity markets. This update will discuss the behavior of the major indexes as we approach this time frame.

Dow Theory concerns: As the chart below indicates, the Transports have made a new recovery high while the Industrials have lagged behind--unable to break through the previous high of 10767.15 on January 14th of this year. In order to validate the DJT high it is essential that the 'Industrials' follow suit sooner than later. If the Industrials fail to surpass the January high and trades below the 21 day exponential moving average--currently at 10437-- investors will have a reason for concern.

right click chart for larger view in new window.

Price Harmonics & the SP 500

The chart below shows that as we enter the March 17th time frame, the market is at a potential 'harmonic balance' point.
  • An extension of1.618 times the initial rally (XA) equals 1154.39
  • If the rally from the February 5th low is viewed as an A-B-C formation it can be seen that XA = BC @ 1153.94
  • Friday's close of the S&P 500 was 1153.41
  • If a circle is drawn using AX as the radius, the current level is coincident with the arc. This is a natural resistance point. A significant violation of this arc to the upside would suggest continued strength in the market.
  • The 5 day TRIN reached levels often seen at significant tops on Wednesday and Thursday.
  • Equity Put-Call rations are mixed. Equity Option averages are indicating more optimism than the index options. 10 and 50 day moving averages for the put call ratios are as follows: INDEX: 1.41 & 1.26 EQUITY: .55 & .624
Trader's Narrative has an excellent synopsis of the weekly sentiment indicators. As well as providing insight into the mood of the street, Trader's Narrative provides a comprehensive summary of many technical indicators and approaches to trading. I highly recommend that you visit this blog.

right click chart for larger view in separate window

As of Friday's close there is no concrete indication of an exit for long positions--or entry for shorts. This potential harmonic cluster merely suggests the possibility of an area for an important peak in prices. The 21 day exponential moving average should supply support--currently @ 1121.87. A close below that would suggest that further weakness is likely. The best strategy for traders at this juncture is to look for a 3-day reversal patterns and/or a reversal or bearish candlestick formation. This is an important week for the markets. The next significant 'energy' date is April 3-5th.

Stay Tuned.

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