The market had its worst sell-off in a few sessions as the S&P 500 (as well as other key benchmark indices) rallied up into resistance zones and then turned down. The volume on the sell-off was much heavier than the volume on the advance and suggests the bear still has some bite left. Internals on the sell-off were decidedly in the favor of sellers. Thus the bias remains cautious and the path of least resistance remains down until a variety of resistance levels can be overtaken.
Below in our chart watch we look at several key indices from a technical perspective to paint a more detailed picture of the current “Message of the Markets”.
As seen above, the S&P 500 stalled at the convergence of resistance and a downtrend near 1,100 (red and orange line). Volume expanded on the sell-off after a light volume advance. Until we can break above 1,100 the path of least resistance is down.
As seen above, the Dow Jones Transportation Index (TRAN) reversed Friday at a downtrend line. Like the S&P 500, until this index can work out the downtrend the bias will be down.
As seen above, copper futures are in a triangular consolidation (red lines) and nearing the apex of the consolidation. Expect a resolution of the range very soon. A downside break would suggest the economy is softening, while an upside breakout would suggest the economy is still tracking up.
As seen above, the euro, which we covered near $1.20 due to a prescient call by Felix Zulauf as he suggested that sentiment regarding the currency was too negative, has recently moved back above a downtrend line (red line) and is now approaching a resistance zone near $1.30 to $1.33. With other countries in the EU likely to come clean with bigger issues we expect the euro to fail at the aforementioned resistance area.
Source: Kevin Lane, Fusion IQ, July 19, 2010.