Market out of fuel needs a pull back

Αυξημένη μεταβλητότητα αναμένεται τον Μάιο στο Χρηματιστήριο Αθηνών
April 30, 2014
S&P short-term technical analysis
May 6, 2014

With Dow Jones unable to make a strong close above 16600 and S&P struggling to close above 1890 without being pulled back down to 1870, it is time for the market to ‘Sell in MAY’ as there is not enough fuel to sustain a new upward move. Any new all time high I expect it to be short-lived and faded. Although I’m longer-term bearish I believe markets need to pull back towards an equilibrium level where renewed strength can keep an upward sustainable move keep going.


Both S&P and DJIA are expected for the intermediate-term to move lower. S&P is expected to move towards 1800 and most probably lower towards 1760, while DJIA is expected to pull back towards 15400. The RSI divergencies while new highs are made, is only a small bearish signal. The recent upward moves made by both indices seem corrective in nature and part of a bigger topping formation.


Important support levels remain unchallenged and short-term trend is bullish. However bulls have more to lose at current levels than bears. I expect May to see an increase in volatility and the start of a downward correction that will provide buying opportunity for equities. Nasdaq is struggling to break above the 3660 resistance  and in danger of creating a second shoulder and a bigger H&S pattern that could bring the index near 3100 if neckline at 3400 is broken.


RUSSELL 2000 is no different from NASDAQ. Is this index showing what to expect in the other indices as well or the quality diferences justify the divergence between these indices? I expect the rest of the indices that trade near their all time highs to follow RUSSELL 2000 and continue lower.


Concluding, it is not a good point in buying stocks despite the hype of new all time highs. Yes we are bullish longer-term but we feel a much better opportunity to go long will arise soon as we expect a deep correction to unfold in May. Markets are mainly moving sideways during the last couple of months with no clear direction. A downward corrective move is expected before a big upward breakout that will signal the start of a  new upward move. So I prefer to play defensive and with lots of cash at hand, ready to seize any opportunity.

As always, thank you for taking the time to read my new thoughts.

Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.