Wednesday, April 28, 2010

Potential Short Term Top

Greece, Portugal, and Spain credit downgrades may have put the brakes on this run-up.

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Today SPY attempted a reversal of yesterday's drop, as indicated by the white candlestick. However, it failed to close above the 20d EMA; that is the first warning sign. Also, price could not retrace even 50% of yesterday's drop.
ES needs to close above 1190 tomorrow to confirm the reversal. Failure to do so doesn't necesarily mean it will go down right away, but it would be another warning sign.
Also, Friday was when ES broke to new contract highs. However, the breakout has failed, as we have closed below Friday's RTH lows (1201.5) for the 2nd session now. I think this qualifies as the TraderVic 2B Top. There should be many sellers waiting at 1201.5

It is interesting to note that last week's drop (triggered by the Goldman Sachs (NYSE:GS) lawsuit) started at 1205 in ES. Yesterday's drop (triggered by Greece bond downgrade to junk status, and Portugal debt downgrade) also started at 1205.

Note how the NYA50R broke below a 7 week range. BPSPX is starting to rollover, but a close below 85 is needed to confirm the reversal.

Nasdaq has held up better, but it also looks like a break below the 7week range is imminent. BPCOMPQ also starting to rollover, a close below 70.5 will confirm.

Looking at the leaders, I see more and more of them closing below the 20d EMA (GS, GOOG, BAC, MA, AMZN, XLF). Without leadership, any market rally will be unsustainable. Unless Monday's high of 1216.75 is taken out within a week, all signs point to this as being the short term top.

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