Stock market outlook remains negative with bearish signals
Stock markets shot higher early in yesterday’s session and it must have felt like the resumption of the bull market to many investors in the morning. However, gains in the DAX 30, S&P 500, Nasdaq and Dow were short-lived and the signals for today are bearish across the board.
DAX September futures gapped higher on the open, which is often a bullish signal, and shot to important resistance at 10,495/505. Our subscribers were selling here with stops above 10,540, which fortunately were not activated before the market collapsed. The failure to beat 10,500 is a negative signal however in the bear trend with a bear flag forming over the past two weeks, which has allowed oversold conditions to unwind.
The next big move looks likely to be to the downside after yesterday’s short squeeze. Note the negative moving average crossovers in the daily chart.
E-mini S&P shot higher to retest two-week highs at 1992/93 yesterday and topped exactly here. We failed to quite reach further important longer-term resistance at 1999 in another volatile session as the market collapsed from 1992 through 1973/71 as far as 1933. This market is all over the place but actually going nowhere, stuck in a 100-point range, hitting the highs and lows of this range about every three days.
However the extreme volatility is a sign of the start of a bear market and the negative bear flag formation signals that the next big move is likely to be to the downside.
E-mini Nasdaq was unable to beat important strong resistance at 4375/85 yesterday, topping at 4370. We wrote in our daily report yesterday: ‘Failure to beat this critical area could signal a resumption of the bear trend and severely sharp losses cannot be ruled out. Sell here, stop 4405, but be aware significant moves to the downside are very possible.’
Moves of 120-130 ticks per day appear normal now. Another bearish pattern in a developing bear trend, with a negative moving average cross. The risk of a great move to the downside has increased after yesterday’s action.
E-mini Dow Jones shot higher yesterday morning and ran into resistance at two-week highs of 16,665/685. It looks like 400 to 500-point moves a day are becoming normal, not the conditions you would expect if the market was beginning to stabilise and start a new leg higher in the longer-term bull trend. The short-term bear trend dominates with sellers smashing prices into the close.
Again note the negative moving average crossovers in the chart. Oversold conditions have been unwound in stock markets. Bear flag formations warn of a break lower in the near future.
I will end with a quick look at gold which has been a focus for us recently. A strong recovery from important support at 1086 took us to strong trendline and 100-day moving average resistance at 1165/70. Now the price has collapsed back through important short-term support at 1115/17. This risks a retest of the important longer-term support at 1086/85.
A double bottom here would be much more positive longer term for the price of gold, so this may offer an excellent low-risk buying opportunity. However a break below 1075 is going to be a sell signal for a continuation of the longer-term negative trend.
Jason Sen – Technical Analyst & Trader
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