Monday, May 21, 2012

Morning Market Analysis; It's Getting Very Ugly Out There ....

Last week, the markets dropped again.  Overall, the technical situation continues to deteriorate.  The charts below show the depth of the damage.

The 60 minute chart of the QQQs is illustrative of the overall breakdown.  Prices gapped lower twice at the beginning of the month.   Prices consolidated in the 63.5-64.5 range through the 16th.  Starting mid last week, prices were clearly in a strong downtrend.  Note that prices were moving lower with no relief rally.  Also note that the MACD has been negative for most of the month and is currently in a downtrend.

The IWMs broke through support in the 78 area and are now below the 200 day EMA.  The shorter EMAs are all lower.  Prices are now targeting the 38.2% Fib level.  All the technical indicators are negative; the MACD is dropping, the CMF shows little to no volume coming into the markets and the Bollinger band width is increasing, telling us that volatility is increasing.

The underlying technicals of the QQQ are the same as the IWMs.  Prices have moved from tehe 68 price level to 60.81 and are now at the 200 day EMA and 50% Fib level.

The SPYs are now below the 200 day EMA are are looking for support at Fib levels.

The markets are now in full-blown correction mode, largely caused by the EU situation, but also as a result of the slowing US economy.  There are two levels of support on the daily charts that are now crucial: the 200 day EMA and the lowest Fib level.  Should prices breech these levels on one average, the possibility increases  for a breach by the other averages.  At that point a complete retracement of the December - April rally is extremely likely.