US Stock Market - More Weakness Ahead

Dow, S&P500 and Nasdaq index broke below their uptrend line on Friday. Volume has been picking up and this suggests real selling and not just profit taking.

The recent weakness started off from China when news broke that banks have been told to suspend lending. Although the suspension was not system wide, the market reacted nevertheless with Shanghai index moving down more then 3% and Dow closed nearly 1.1% lower. Adding to the uncertainty was US President Barack Obama proposal to overhaul US banks in order to avoid future financial crisis.

Technical charts are looking weak with MACD below its signal line and –DI above the +DI together with an increasing ADX value.

The support level for Dow is near the 10,000 level which is where the Fibonacci retracement is located. Expect to have more weakness next week.

US Market Update

Some negative signs are showing up in the technical charts for S&P500 index.

Firstly, the MACD indicator is about to make a bearish crossover. The –DI is above the +DI and RSI is seen to be turning down from overbought levels. All these signs point to a weaker market in the short term.

However having said that, the uptrend is still intact as the trend line connecting the lows is still not violated.

A test of the trend line is possible this week. A closed below the trend line is negative for the bulls whereas a successful test of the trend line followed by a rebound is a sign of trend continuation.

Let’s see how the market behave this week Happy trading!