Monday, May 30, 2011

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

Last week I wrote the following about the markets:
In short, the technicals of the market are now signaling more caution signs. Important, long-term trend lines have either been broached or are currently very close to being broken. Underlying technicals (A/D, CMF, MACD) are weakening. This mirrors the issues with the fundamental economy right now, which is also showing signs of weakness. In short, I would not be looking for any long opportunities right now. If you've made money over the last few months, I'd take some profits off the table. And I'd also be looking for a shorting opportunity if it presented itself.
Nothing has changed in my analysis for the equity markets. Consider the following charts:

The SPYs are currently in a controlled, downward sloping channel. The A/D line is not showing a significant move in or out of the security, but the CMF is showing that action. The MACD is decreasing, but may be about to give a buy signal. The EMA signal is jumbled; the EMAs are in a tight band, indicating a lack of overall direction.

The QQQs long-term chart shows that prices have clearly broken an important trend line.

The shorter chart shows the trend break with far more clarity. Also note the similar technical picture as the SPYs. Also note that prices are using the EMAs as technical resistance -- a bearish sign.

The longer IWMs also show a clean trend break.

There is little more to say about the IWMS shorter chart that has not already been said.

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.