US markets show warning signs

Gold daily analysis
July 10, 2014
Gold wave analysis
July 11, 2014

With European equities in a sharp decline, US market futures are showing a negative open below recent lows. Is this turmoil from Europe enough to push US indices lower in deeper correction territory. It was a matter of time for at least a short-term trend reversal in US indices. On Tuesday both DOW and S&P have reached their initial support levels and made a bounce yesterday. Yesterday’s bounce was not strong enough to bring bulls back to safety. On the contrary, early futures trading shows signs of more weakness and prepares traders for a gap down open.

If Dow closes below 16900 we should be prepared for a minimum 200 point decline towards 16700. This is just an early warning for a bigger correction that could push the index back to 16300-16400.

dowdaily

dowpitchfork

S&P also managed to hold short-term support the last few sessions but pre-market action shows extreme weakness. A deeper correction will initially bring the index back towards 1900 and if strong enough, it could even push it as low as 1880-1860. If 1935-40 support is broken, then we should anticipate the decline to continue towards 1900. At 1900 the support is strong from the previous highs that was once resistance. In the second chart we see the longer-term trend line support coming from 1400 that provides important support in the 1880 area.

SPXD

spx1334

 Concluding, the short-term trend is in danger of changing. Bulls are now paying the price of the all time high overconfidence that no matter what markets would continue to rise. Technically the longer-term trend remains bullish. But how many have the mental strength to hold on to their longs even if the market falls to 1900-1880?

Thank you for taking the time to catch up on my thinking.

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.