Time to Head Down?

Is this silly rally over yet? Hard to say. As you can see from the chart, the upward thrust over most of the past week started to weaken, and the sharply ascending trendline has been broken (this particular chart is the S&P 500, but most of the big indexes look similar).

The resistance levels reached Friday must not be broken if the bears are to maintain their optimism that the swoon will resume. What we ultimately want to see is the lows set late in April cracked, and the Dow 30 to get beneath the psychologically important 10,000 level. Until now, it's bounced off it.

Pivotal Point

All of the equity markets have been generally upward for the past four days (April 29 through May 4) and were mixed today, May 5. As a bear, I appreciated seeing some red numbers for a change! The graph above shows the MDY over the past few months. The head and shoulders pattern is still very much in place, but we don't want to see the MDY cross above that horizontal line which equaled today's high.

Anyway, the S&P 500 and the Dow 30 have both broken above their descending trendlines, which although discouraging isn't so horrible since these are relatively short-term lines. The big picture remains unchanged.

At this point, we're going to need to see some pretty earnest downside action to confirm our suppositon that the market is headed much lower. It was unfortunate that the new lows reached early in the morning of April 29th didn't follow through, and the markets actually closed up for that day (this double bottom is shown as highlighted yellow in the graph above).

Close Call

The S&P has been moving up toward its descending trendline recently, which is pretty crucial to maintaining the downward bias of this market. The fed announced another rate increase today which, as typical, caused the equity markets to violent lurch this way and that. At this point, the price has not crossed above the trendline, although as you can see it just barely touched it. We need to stay below this trendline in order to remain bearish.