US Stock Indices Short
Updated
US equities particularly DJIA, SP500 and NDX appear to be at overbought conditions. DJIA and SP500 reached new heights the past week, the highest since February. My analysis of the DJIA shows that the index has failed to reach the upper resistance line of the price channel that has formed over the last months. On top of this the recent high on the chart is showing two major divergences. The MACD indicator divergence is a common signal that can confirm trend reversals. Here, with support of the RSI divergence gives a strong confluence signal of an coming re-tracement.
I am not confident where the re-tracement will bounce back, but the 61.8% Fib line seems to have strong past price action turning from resistance to support.
From a fundamental market point of view, most of the US company earnings have already been released, so extended enthusiasm on good earning reports will begin to fade. Chinese US trade war will be back in focus as Chinese officials have bumped up their rhetoric against the Trump administration as a 'bully' buoyed by protectionism and fears of omnipotence. Also in contention of further US equity gains, is the hawkish Fed which intend to increase interest rates in the next quarter. Another crucial long term economic structural factor hindering the state of the US economy is the widening National Debt at US
21T coupled with tax cuts and aggressive forward government expenditure, does not further strengthen the economy.
Analysis in US equities at the moment is difficult as so much information and events are occurring that traditional technical analysis is not as useful at providing trading signals as it was previously. The markets are experiencing extreme swing highs and lows in volume and volatility is erratic at best description. Take caution as all global markets may need a 12 month consolidation period before a new trend is firmly established.
I am not confident where the re-tracement will bounce back, but the 61.8% Fib line seems to have strong past price action turning from resistance to support.
From a fundamental market point of view, most of the US company earnings have already been released, so extended enthusiasm on good earning reports will begin to fade. Chinese US trade war will be back in focus as Chinese officials have bumped up their rhetoric against the Trump administration as a 'bully' buoyed by protectionism and fears of omnipotence. Also in contention of further US equity gains, is the hawkish Fed which intend to increase interest rates in the next quarter. Another crucial long term economic structural factor hindering the state of the US economy is the widening National Debt at US
21T coupled with tax cuts and aggressive forward government expenditure, does not further strengthen the economy. Analysis in US equities at the moment is difficult as so much information and events are occurring that traditional technical analysis is not as useful at providing trading signals as it was previously. The markets are experiencing extreme swing highs and lows in volume and volatility is erratic at best description. Take caution as all global markets may need a 12 month consolidation period before a new trend is firmly established.
Trade active
Index has now broken through the parallel channel. Very strong chance of a move towards 38.2% Fib before a possible rebound before continuing the down trend. This currently represents a strong trading opportunity with a potential 325 point take profit.
Also, MarketWatch reported that Morgan Stanley announced that US equities were showing signs of exhaustion and provided warnings about a market correction:
"Morgan Stanley called for “a breakdown in both legs of momentum,” which it warned “could be a trigger for a significant market correction.”
It’s “hard to walk with two broken legs,” it noted in a note to clients published earlier this week.
While recent price action has been positive, however, Morgan Stanley is concerned about how breadth — the number of stocks rising compared with the number falling — was diverging from price.
“Fewer stocks are carrying the load of the market, a sign of exhaustion and, in our view, a bad signal for further price gains,” the investment bank’s team of analysts wrote. It added that a recent example of a major stock hitting a notable milestone for strength — Apple Inc.’s AAPL, -0.30% market capitalization cresting $1 trillion — “sure sounds like a ‘ringing of the bell’ to us.” Rather than the $1 trillion valuation being a sign “that all is right with tech,” Morgan Stanley wrote, it “could be a meaningful historical market for a tradable top.”
Link: marketwatch.com/story/morgan-stanley-sees-two-broken-legs-for-stocks-heralding-significant-market-correction-2018-08-08
At this stage, the market may have a lot further to fall, but a good conservative trade would be to tale profit at 38.2% Fib or roughly the 25000 point mark
Note
Down Down, prices are down.Market doesn't seem to have many bulls at the moment. I expect a touch to 25150 before a re-tracement.
My outlook has changed from conservative bearish to quite bearish.
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