Indices Flashing Major Sell Signals

In Mondays Daily Market Outlook , we examined charts of the S&P 500 and Nasdaq
two indices with a focused nature. The S&P 500 is generally considered to be the
best 500 companies, while the Nasdaq is heavily weighted toward the technology
sector. I concluded that it was likely that Fridays rally resulted from the
expiration of April options and was therefore a forced short-covering rally that
could quickly turn into a dead cat bounce. Today, well look at charts of two of
the broadest-based indices, the NYSE Composite, which is composed of all common
stocks traded on the New York Stock Exchange, and the Russell 3000, which
measures the performance of the largest 3,000 U.S. companies representing about
98% of all stocks traded in the United States. The NYSE Composite chart shows a
clear break of the 20- and 50-day moving averages following a strong sell signal
from our internal indicator, the Collins-Bollinger Reversal (CBR). This coupled
with a Moving Average Convergence/Divergence (MACD) sell signal (lower right)
indicates that Fridays rally was not sustained. The only remaining bit of
evidence to fully wrap it up for the bears would be a close under the green
support line at about 8,220. A close under that line would confirm a breakdown
from a double-top with a trading objective of about 7,900. The Russell 3000
chart is similar to the NYSE, but shows twin CBR sell signals (strong bearish
indicators). However, we require a close under the green support line at 770 to
fully confirm a breakdown. Neither chart supports the bulls, and both charts, as
well as the ones of the S&P 500 and Nasdaq that we examined yesterday , closed
below their respective 20- and 50-day moving averages. Conclusion: The stock
market is headed lower with objectives close to their respective 200-day moving
averages (red solid line.) Investors should remain on the defensive, selling
into rallies, and traders should actively pursue bearish strategies. For one
stock to sell or short, see the Trade of the Day . Todays Trading Landscape To
see a list of the companies reporting earnings today, click here . For a list of
this weeks economic reports due out, click here . If you have questions or
comments for Sam Collins, please e-mail him at samailc@cox.net .