Summer Doldrums And Looming Moving Average 50/200 Death Cross

by Olivier on June 29, 2010

We’re officially in the summer doldrums. The Shanghai Index weakness finally led to a Breakdown of the Shanghai Index dragging down the US indices and adding to the chart damage. Considering the continued selling pressure that shouldn’t have come as a surprise. The break down from the recent triangle pattern now suggests a price target for the Shanghai Index around the 2000 – 2100 level. If that were to occur it will further drag down the US and world indices. Watching the Shanghai Index as a leading indicator is a good way to gauge the markets. Keep an eye on it.

As mentioned in the title of the post the major indices are about to witness a ‘Death Cross’. The faster moving average 50 is about to cross the slower moving average 200, and will be below the MA 200 soon. Technically speaking this will add more selling pressure as quite a few market participants base their entry and exit decisions on these crosses.

The markets don’t look good here. It’s still too early, but the signs of the cyclical bull market being over are increasing. For the bull market to continue we will need a lot more stocks building bullish patterns as opposed to the few everyone is watching right now. CTRP – a China stock that was displaying an excellent and very bullish pattern gapped down today. The overall bullish bias is still there but it is a great example how the strong stocks, I recently referred to as Salmon Stocks, will need more time to regroup after today’s selling. If selling pressure continues to hit the markets, those strong stocks will need even more time before they can offer decent buy signals.

One last thought on the Euro and the possible Island Reversal pattern. Now that price has dipped back into the second gap I am having serious doubts about the Euro being able to move up in order to retest the 1.30 price levels. For now the pattern is displaying serious signs of deterioration. Time will tell.

We are witnessing oversold conditions. Keep in mind though during bear markets oversold doesn’t mean a thing. Oversold can simply stay oversold while prices keep on dropping. I’m staying on the sidelines, waiting and watching the World Cup.

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short. Victor ‘Trader Vic’ Sperandeo

My public list with all my charts can be viewed here:

Buenas noches!

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