Sunday, June 5, 2011

Equity Week in Review and Preview of the Upcoming Week/Month

Last week, I wrote the following about the market:

The good news in these charts is we are not seeing a massive sell-off; instead the selling is disciplined and meandering. I believe traders are treating the current economic slowdown with a "wait and see" attitude. However, as the sell-off continues, keep your eye on important technical levels as they might indicate a good shorting opportunity. I would not be long right now.
Last week's economic news was terrible: manufacturing dropped hard, the case shiller house price index declined, consumer confidence dropped, initial unemployment claims are still stubbornly high and the unemployment rate increased. In short, there is no reason for people to be long right now. Hence, we get the following 5-minute chart:

The market was closed on Monday and tread water on Tuesday. Prices dropped hard on Wednesday, moved sideways on Thursday, and gapped lower at the open on Friday and sold-off into the close. This is not a bullish chart.

Prices are now below key support levels and have broken through the lower support line of a downward sloping channel. The 10 day EMA has crossed below the 50, and the 20 is about to cross below the 50. The shorter EMS are moving lower.

On the longer chart, prices have clearly broken long-term support.

The QQQs have also broken long-term support and are below key support levels.

The IWMs have also broken key, long-term support and are right at key shorter support levels.

All of the major averages have now broken long-term support lines and the economic news is decidedly negative. I would be looking for shorting opportunities with a price target of the 200 day EMA.