Sunday, June 12, 2011

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

Last week I wrote the following about the equity markets:

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.

As the charts below will show, the markets all took a decidedly negative turn last week along the lines I outlined.

The SPYs continued their move lower after breaking through support in the 132.5 area. The A/D and CMF all indicate that money is leaving the market, while the MACD shows momentum is decreasing. The EMA picture is equally bearish. The shorter EMAs are below the longer, all are moving lower and prices are below the EMAs. Prices are just a tad above the price target of the 200 day EMA. The same analysis applies to the IWM and QQQ charts that follow:

Here is a chart of the transports:

Notice that prices are now negative for the year.

After leading up to a sell-off the markets have now started to clear out the dead wood. Concern about the pace of economic recovery has been building, so this sell-off should not be considered out-of-place. The real test going forward will be the reaction to prices as they approach the 200 day EMA. A strong break through that technical area would be a major trading event, and confirmation of a stronger move lower. However, as I'll show throughout the week, the Beige Book does not show an economic catastrophe in the making, but instead an economy simply slowing. I think the more likely action is prices holding at the 200 day EMA to "catch their breath," as it were. However, for those who took my advice and shorted last week, place your stops so there is still a profit if triggered.