By: Zev Spiro
It was a very interesting day yesterday. World markets were spooked on Japan headlines and the major market indices had significant gap-downs at the opening bell. SPDR S&P 500 Trust (SPY) traded slightly below the $127 short term target obtained from the pennant formation highlighted recently. Bulls took control and a rally ensued for the remainder of the day filling the gap on a daily chart.
The iShares Russell 2000 Index Fund (IWM), PowerShares QQQ Trust (QQQQ) and SPY all recently ended their intermediate up trends, signaled by confirmed breaks below their 50-Day Moving Averages and intermediate up trend lines.
Only two trends remain, sideways and down. Many individual names have bearish distribution patterns forming and triggering, alluding to a similar scenario for the above mentioned indices. Below are potential bearish distribution scenarios for these indices, followed by a trade idea in MSCI Inc. (MSCI). These patterns are not fully developed and have not triggered (except QQQQ), therefore, they should only be used as a roadmap for a possible bearish scenario as the trend is subject to change at any time.
Chart 1: QQQQ: The daily chart below illustrates a bearish head and shoulders pattern that triggered with confirmation. This is the only chart of the three index ETF’s mentioned that has a fully developed chart pattern.
Chart 2: IWM: This daily chart illustrates a potential head and shoulders pattern that may form. It suggests a bounce in the near term that will then roll over. Resistance may be found at either, or all of, 1) minor downtrend line, 2) 50-day SMA, and 3) gap from March 10th.
Chart 3: SPY: Outlined on the daily chart below is a potential head and shoulders distribution pattern, using daily closing prices. Same resistance areas as IWM apply here.
Chart 4: MSCI: The intermediate uptrend broke in mid-January, signaled by breaks below the 50-day Simple Moving Average and the intermediate uptrend line (highlighted). There was a surge in volume accompanying the breaks, which added validity to the change of trend. For the past six months, a bearish head and shoulders pattern was developing. A confirmed move below the neckline at $34.84 would trigger the pattern and violate the 200-Day SMA. Trigger: Confirmed move below neckline at $34.84, Target:minimum expected objective is $27.50. Protective Stop: confirmed move back above the neckline.
If you are interested in receiving Zev Spiro’s market letter, please email zevspiro@oripsllc.com subject “T3”
*DISCLOSURE: Short SPY
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