US Market Analysis - Breakdown imminent

[trendmagic]

Current Market Outlook 09/10/2006: courtesy of my website

DOW JONES BOTTOM SPOTTER: SHORT


Nothing has changed in terms of the SP500 since our update last week. We have the possibility of going to the 1305 area on a backtest of the broken trendline. The volume patterns, seasonality, and a slew of indicators showing bearish crossovers has us in the bearish camp suspecting much further downside.

We have done an analysis on the AMEX index which has yet to break down from its uptrend that began in 2003. We are seeing a potential breakdown in the making for the reasons mentioned on the chart.

Also, we would like to point out a very bearish development in the $NYSE that we have noticed. On a weekly basis, the NYSE has printed a bearish engulfing candlestick pattern. This pattern is defined as a reversal pattern that can be bearish or bullish depending upon whether it is in an uptrend or downtrend. The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body. We would usually like to see a big price spread and large volume on last weeks candle but we think it is bearish nonetheless. The formation presented itself right at resistance areas and supports our views for lower prices ahead

 

[trendmagic]

Current Market Outlook 09/18/2006:

DOW JONES BOTTOM SPOTTER: NEUTRAL

We want to take a closer look at the Nasdaq today. We are issuing a SELL signal tonight. We are seeing an interesting development taking place, right here right now. We want to show you a weekly picture of the nasdaq; it appears as if a rising wedge has developed on the nasdaq on a larger basis. We are now testing the uptrend line from the 2004 bottom. This represented the bull/bear line for the last 2 years. We have broken it and are now testing it on the way back up. The 2250 area also represents a gap that you can see on the weekly charts. We have drawn a horizontal line there. Gaps act as resistance when challenged from the downside.

Lets take a look at the daily charts for further clues on the short term structure of this market. On the daily, you will see a candlestick pattern today known as a "shooting star". This is a pattern characterized as a type of candlestick formation that results when a security's price, at some point during the day, advances well above the opening price but closes lower than the opening price.

The body, or open minus the close, must be at least 1/3rd of the size of the (High-Open) to be considered a shooting star. These patterns tend to indicate a reversal when found in uptrends, especially strong ones. Furthermore, the volume patterns on the nasdaq are indicative of a top of some sort here. We penetrated Friday's highs by 3/10ths of a point today and did it with 20% lighter volume and failed to close above that high. This is a bearish sign on the short term and indicates that this market is tired.

We also did a study on the declines that occur in the timeframes that we are currently in. We did a study to analyze, on the DOW JONES Industrials, the % drop in the markets from the September top to the October lows.
Here is what we found, with the exception of 1996 and 1988, the market has had a minimum of a 4% drop from high to low. The average decline is much greater...near the 10% area. Highligted in yellow are the last 5 four year cycle bottoms in this market. We are due for another one this October. Lets see how this plays out. In our opinion, nothing has changed in our stance on the market which is that we will set a major bottom in October of this year

Year Date of Top Price at Top Date of Bottom Price at Bottom % Decline
2005 12-Sep 10700 15-Oct 10150 5.14%
2004 8-Sep 10390 25-Oct 9708 6.56%
2003 19-Sep 9686 Sep-31 9230 4.71%
2002 11-Sep 8750 10-Oct 7197 17.75%
2001 1-Sep 10200 21-Sep 8062 20.96%
2000 6-Sep 11401 18-Oct 9651 15.35%
1999 10-Sep 11150 18-Oct 9976 10.53%
1998 24-Sep 8182 8-Oct 7467 8.74%
1997 8-Oct 8218 28-Oct 6933 15.64%
1995 15-Sep 4839 10-Oct 4638 4.15%
1994 19-Sep 3972 6-Oct 3736 5.94%
1993 1-Sep 3665 21-Sep 3501 4.47%
1992 14-Sep 3391 5-Oct 3087 8.96%
1991 1-Sep 3065 9-Oct 2925 4.57%
1990 10-Sep 2665 11-Oct 2344 12.05%
1989 10-Oct 2809 16-Oct 2496 11.14%
1987 4-Oct 2662 20-Oct 1616 39.29%
1986 7-Sep 1933 29-Sep 1732 10.40%