This column was originally published on RealMoney on Aug 9. at 6:58 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Monday was a key day. The
broke below the March high of 1225, suggesting a failure on the recent breakout to new swing highs.
Additionally, as the chart below shows, the S&P also turned its three-day chart down (for the first time in a long time) by tracing out three consecutive lower lows.
(The behavior of the three-day, three-week and three-month swing charts and their importance, among other swing-trading techniques, will be explained in detail at the upcoming seminar in Las Vegas in early October that I and Dave Reif will be conducting.)
Note how the overhead 20-day moving average on the S&P marked resistance early Monday, confirming the short-term downtrend.
The next stop looks like a test of the 50-day moving average near 1215 S&P.
If that level is lost, last-gas support at 1190/1200 comes into focus.
The notion of a significant top in this time frame that I've been looking for appears to be underscored by the price action of two leading groups -- the housing and retail sectors -- as shown in the charts below.
: After three days down off the top, if the bulls are out there, a strong rebound attempt would normally be expected.
If it does not occur, and I am not at all convinced it will from this level -- I would then expect to see another three days of weakness before any such rally attempt.
(In the S&P Retail Index chart a little lower on this page, please notice the sharp angle of attack to the downside in retail, a leading sector. Also, note how it is perched on last-ditch trend line support
A and B, with a test of its 50-day moving average not far below.)
Philadelphia Stock Exchange Housing Sector Index
S&P Retail Index
S&P 500 Daily
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