S&P 500 has formed a Bearish Advance Block pattern

The Stock Market Week - 7/18/2008

In our previous publication on June 13, we suggested that major market indices are oversold, and we expected a short-term rally soon. All there major indices had a sharp rally this week. For the week the Dow Jones Industrial Average gained 396.03 points, or 3.57%. The Standard Poor's 500 Index gained 21.19 points, or 1.71%, while the Nasdaq Composite gained 43.70 points, or 1.95%. Finally, after a long decline, the Financial sector became the strongest sector last week followed by the Consumer Discretionary sector. The Energy sector was the worst performing sector of the week followed by the Utilities sector.

Dow Jones Industrial Average Trend Analysis Dow Jones Industrial Average long-term chart has formed a head and shoulders pattern. This pattern is near completion. It is common for a head and shoulders pattern to retest the neckline. The neckline (around 11500) now becomes an important resistance level. The Dow Jones may retest this level, offering a second chance to sell, before moving down again.

Dow Jones Industrial Average - Long-Term Trend

Standard Poor's 500 Index Trend Analysis Standard Poor's 500 Index is in the long-term down trend that started on 10/11/2007 at 1576.09. The chart is forming a falling channel pattern. The support line is around 1200, and the resistance line is near 1375. The first down wave had five-wave structure, and it was completed on 3/17/2008 at 1256.98. Standard Poor's 500 Index is in the third down wave of the long-term down trend. The third wave started on 5/19/2008. The short-term rally, that we had anticipated, is in process now. The third wave down might not be completed yet, and it may resume soon. On Friday, Standard Poor's 500 Index has formed a Bearish Advance Block candlestick pattern.The Bearish Advance Block candlestick pattern is more meaningful during a mature uptrend. It is a sign of weakness, and it often precedes a meaningful price decline. A confirmation of the reversal on Monday might provide the needed proof that the short-term rally has reversed.

Standard Poor's 500 - Long-Term Trend

Nasdaq Composite Index Trend Analysis The Nasdaq Composite index is retesting the long-term rising support line. As you can see in the chart below, this trend line served as a support line for five years, and Nasdaq Composite index was not able to break it. Every time the chart had touched the support line, the daily and weekly technical indicators had been in oversold area. Now for the first time weekly technical indicators are natural. It makes the support line much weaker. After the short-term rally that we anticipated last week, Nasdaq Composite index might retest the long-term support line once more and the weakened support line might be broken.

Nasdaq Composite Index - Long-Term Trend

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