Monday, July 12, 2010

Market outlook for July 12th

I have posted a Dow chart for the past 6 months and have underlined in red the formation of the "W" pattern which has emerged. The red line extends under the "W" pattern's bottom lowest legs. As mentioned on many earlier posts, a slanting downward "W" usually means new lower lows are coming than the lowest leg of the "W" already formed. You will also notice that there is a gold line showing the 50 day Moving average is about at 10,300. The market will not go above this line and even if it does briefly, the Dow will stay below it. We are close to the top of this short rally, which has occurred on low volume as the bottom of the chart above indicates. When price rises and volume drops, that is a very bearish sign.

So this market is bounded by resistance at 10,300 and an inevitable drop below the lowest levels so far. That is where we will stay for a while. Today starts earnings season for the second quarter. Watch for a more cautious outlook from companies going forward for the remainder of the year. The reasoning being that everyone knows the economy is soft, so why take the risk and get penalized for showing a bright future when if they miss higher expectations next quarter the market will be punishing to their stock price. So caution is the word this earnings cycle.

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