Stocks Edge Higher On Healthy M&A Outlook
Stocks Edge Higher On Healthy M&A Outlook- Wed Stock market commentary August 18, 2010
Flurry of M&A News Lifts Stocks
Tuesday, August 17, 2010
Stock Market Commentary: The technical action in the major averages is not ideal. Currently, resistance for the Dow Jones Industrial Average is its 200 DMA line, while the Nasdaq composite faces resistance at its 50 DMA line. Meanwhile, the benchmark S&P 500 index managed to close above its 50 DMA line but still faces resistance near its 200 DMA line (1,116) and then its prior chart highs near 1,131. The action in leading stocks remains questionable at best which is another disconcerting sign. Tuesday’s action does not change our cautious outlook. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
Head & Shoulders Top Or Double Bottom?
It is also important to note that the major averages are currently tracing out either a massive head-and-shoulders top or a potential double bottom pattern. There are two possible scenarios from this point: the market will trade above the middle of the “W” (dotted line shown above) or it will take out the neckline of its H&S top (recent lows, not shown). Only time will tell which pattern prevails. Patience is paramount until either pattern resolves itself. Trade accordingly.
Stocks Slide As Global Recovery Slows
The technical action in the major averages has deteriorated significantly. Not all of the major averages managed to rally above their recent chart highs, and all have now sliced back below their respective 200-day moving average (DMA) lines. It is also worrisome to see the number of distribution days pile up in recent weeks which puts pressure on the current five-week rally. Whenever a market rally becomes under pressure (as it is now), it is usually wise to err on the side of caution and adopt a strong defensive stance until the bulls regain control. Trade accordingly.