Charts to Start Your Week

Ed Ponsi

As we move into late September, some clear patterns have emerged. A rotation is underway, but according to the charts, there could be greater concerns ahead. Let's follow the money and see where it's going.

comparison chart
Dow Jones Industrial Average vs. Russell 2000 vs. Nasdaq vs. S&P 500 chart by TradeStation

Money continues to flow out of the Nasdaq, shown in blue, which is having a terrible month. Many of the stars of the Nasdaq, like Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB), have broken below their respective 50 day moving averages. 

Blue chip stocks listed on the Dow Jones Industrial Average are holding up relatively well, but even those names could be in trouble. That's because the 30 stocks that comprise that index have collectively formed a head and shoulders pattern. 

DJIA
Dow Jones Industrial Average chart by TradeStation

If that head and shoulders breaks, the next major support level for the Dow is 26,000 (red line). The double hammer candlestick pattern that formed there in July, shaded in yellow, was a major turning point for the index, and could be again. 

At least the Dow is trading above its 50 day moving average, shown in blue. The same can't be said for the Nasdaq or the S&P 500. 

sp500
S&P 500 chart by TradeStation

On Friday, the S&P 500 closed below that key indicator for the first time in nearly five months (blue). Also on Friday, the S&P 500 closed at its lowest price since August 4th (shaded yellow). The index went down on heavy volume, another ominous sign. 

Bottom line: nothing is ever certain, but the probabilities are lining up against the bulls. If you're fully invested and 100% long, now might be a good time to ask yourself why. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.