Friday’s action looked like a bull trap. Both the SPX and DOW new highs was sold off with Nasdaq and Russell leading the to the down side. This selling has seen all the momentum names of last year selling hard. Especially biotechnology and technology.
The breadth was very negative and seems like bullish price action has deteriorated.
Both Dow and SPX is exhibiting double top pattern and should follow the weak brethren Nasdaq and Russell.In the above SPX chart you could see the failed breakout with price closing very weak.
In the above chart of Russell you could see the five wave pattern playing out.
Looking ahead for next week, earnings season is going to be in front and center. As I stated earlier, money seems to move away from the momentum stocks (nasdaq and russell) and into safety socks (s&p and dow) and emerging markets (EEM). If this continues, expect more sell off to happen.
Outlook: Watch for the SPX levels of 1840, if those break convincingly, we could see further price deterioration to 1815 level. Personally I have positioned with 20% short and 80% cash. I still think further price deterioration is possible and playing in that direction until, I see change in my breadth indicator.
Some readings for Weekend