If we switch to the SP500 and NYSE, we see markets with little Doji's yesterday followed by a down day. I'm going to assume for the time being that it's not a topping candlestick pattern but just a warning pattern. We frequently see that before a real top. We also see a change beginning in the Bollinger Bands, as they are no longer widening.
$BDI: The Baltic Dry Index is something I consider to be a leading economic indicator. It essentially represents the cost of shipping rates to move goods from country to country. If the price is down, one can infer demand to ship is down, which then indicates the real economy will soon decline because there are less goods begin shipped because there are less goods being bought to support manufactures and consumers. The index has all but collapsed out a head and shoulders pattern.
IBM: The stock continues to reflect weaker price structure moving higher. Any decline of size will force a cross of the 50 and 200 day MA, a bearish confirmation.
JNK: It looks like its loosing steam. Any kind of fall should turn over the MACD.
$VIX: Beginning to reflect a little bottoming here. All we really need is a good 1-2 day push higher and a turn up in the MACD. I've labelled what might take place if we still have another pusher higher into Friday or Monday. Above the down trend line should be bearish for Mr. Market.
Summary: Here’s what I’m thinking: The clues supporting a right shoulder include an ABC pattern about done, a potential right shoulder finishing beneath the upper Bollinger Band, and as presented in the prior market update: Stock Charts: Dow Puts in Doji Near Resistance, we have very low collective stock market short positions. Plus, the $BDI indicates a fundamentally weaker economy coming down the road. All of that seems to reflect early signs of a right shoulder top.
In addition, we have IBM and JNK reflecting weak price structure moving higher and all that’s needed is a turn down in price and MACD. The $VIX is close to turning up.
None of this guarantees a right shoulder top, but collectively it’s beginning to support that structure in the near future. The data is beginning to favor that versus a continuation higher. If we are to move higher over the right shoulder, Mr. market has to get back up on the horse and power higher soon recapturing the upper Bollinger Band while pushing it higher. I'll believe it when I see it.
My Watch List: While there’s an opportunity to make a few more little grinding long trades, I really wanted to focus on the big picture today. Last week I said, “I wanted to get light heading into this coming Friday and Monday, and watch the market heading into a potential right shoulder.” That’s still my plan. I still have this Friday or next Monday, maybe Tuesday as a turning period.
From My Trading Desk: I closed our short of NEM. My entry price was just okay and the intraday structure said to close for a tiny gain. I hope I can stay light tomorrow. This little stalling structure may continue for some part of tomorrow, but we should get one more push higher. I'm thinking Monday could be a reversal candlestick type day.
If there’s one thing I could see doing tomorrow it’s increasing my short on JNK. I doubt it will happen because to fill this to a full position, I have a trigger price. JNK has price support and trend support in the same area. Breaking those should roll the MACD over. That's the price I want to focus on for my trigger, and I doubt that happens tomorrow, even if it does fall in price.
Happy Trading.
J.D. Rosendahl, Rosey