At this point looking at monthly charts of the major indices
which filters out all of the daily volatility shows Head and Shoulder Top
patterns in all three of the major averages.
The Dow has a key
support area just above the 9400 level which is along the downward sloping
Neckline (black line) and coincides with the 38.2% Retrace (blue line) from the
March 2009 low to the April 2010 high. Thus 9400 will be a key level
to watch in the Fall as the next support area below that would be at the 50% Retrace near
8900 (red line).
The Nasdaq is also
exhibiting a Head and Shoulders Top pattern with its key support level near 2050
which coincides with its downward sloping Neckline (black line) and 38.2%
Retrace (blue line) from the March 2009 low to the April 2010 high.
If the 2050 level were to be taken out in the Fall then the next support level
would be at the 50% Retrace near 1900 (red line).
Finally the S&P
500 is also exhibiting a Head and Shoulders Top pattern as well with the key
support area near 1000 which is along the downward sloping Neckline (black line)
and is close to the 38.2% Retrace (blue line) calculated from the March 2009 low
to the April 2010 high. If the 1000 level were to be taken out in the Fall
then the next support level would be at the 50% Retrace near 940 (red
Historically the Fall has been
a weak period for the market going way back to the late 1890's so we shall see
if the Neckline support areas mentioned above are tested at some point in
September or October.
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