Market Direction Mid Week Update©

Market Direction: BULLISH alert issued 6/2/2016

The stock market again is under pressure. After 19 weeks mostly a positive market uptrend, the stock market is currently under pressure and investors should consider taking profits.

The S&P 500 may be moving fast toward a technical breakdown that could be bad news for investors.

“And it’s gonna be big, by all accounts,” said Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro.

The S&P 500 SPX, +0.11%  had been trading within a “symmetrical triangle” on a number of time scales, as the index traced out a pattern of rising lows and falling highs. Since the upper and lower boundary lines are narrowing to a point, it’s just a matter of time before the S&P 500 breaks above or below one of them. Read more about “symmetrical triangle” patterns.

“It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” Worth wrote in a note to clients.

His research suggests that the resolution of these standoffs is usually “aggressive,” with the index moving past the declining or rising trendlines “in a meaningful way.”

Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming.

But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern.

“We believe the current formation is a setup for a move lower,” Worth said.

With the S&P 500 dropping 1% in midday trade Tuesday, it has dropped back to test the lower rising trendline on the longer-term charts, after being rejected by the upper declining trendline on Monday. The downward trend may have already begun a shorter-term basis, as the S&P 500 has broken below the lower support line on a 3-month chart.

For the S&P 500, Worth said: “Time will tell, and not a whole lot more time, we suspect.”

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The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (6/2/2016)
Dow	up 884.05 points a 4.95% gain	8/15/16
Nasdaq	up 371.52 points a 7.47% gain	9/22/16
S&P 500	up 88.55 points a 4.21% gain	8/15/16

Related Link: http://www.stockmarket-direction.com/