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Wednesday, August 7, 2013

The Market Is Ready for a Breather

NASDAQ Panelists
NASDAQ  (Photo credit: Think London )
It's time to head for the sidelines and let the consolidation happen


Banks were among the worst performers, with Citigroup (C) off more than 2.5%. Bank of America (BAC) became the subject of a government suit of more than $850 million. Despite a positive day for the technology sector, two of its biggest stars — IBM(IBM) and Apple (AAPL) — posted losses of 0.9% and 2.3% respectively.
At the close the Dow Jones Industrial Average was off 93 points at 15,519, the S&P 500 fell 10 points to 1697, andNasdaq dropped 27 to close at 3666. The NYSE traded 532 million shares and Nasdaq crossed 311 million for one of the slowest trading days of the year. Decliners outpaced advancers by 3.1-to-1 on the Big Board, and on Nasdaq decliners were ahead by 2.3-to-1.
The S&P 500 failed yesterday to hold on to the psychologically important support at 1700 or its breakout point at 1698. MACD is flat and momentum is lagging.
Chart Key
Taking a longer-term view, the chart looks to me like an incipient cup-and-handle formation. But cup-and-handle setups usually form at bottoms; they’re not normally associated with bull markets as continuation patterns. Note the negative nonconfirmation of the Relative Strength Indicator (RSI). This metric suggests a tired market in need of a rest.
Conclusion: Although the bull is healthy, yesterday’s patterns — especially on the senior indices — suggest that a pause is about to occur. Major support for the S&P 500 is at its 50-day moving average, now at 1650, but to get there it would have to violate the first line of support at 1676. Initial support for the DJIA sits at about 15,500, with more significant support at 15,247, its 50-day moving average.
For now, both traders and investors should stand aside unless some very unusual bargain presents itself. And traders should consider some profit-taking.
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