Our Best Six Months Seasonal MACD Sell Signal, for the Dow Jones Industrials and the S&P 500 on April 8, 2010 at Dow 10927.13 and S&P 500 at 1186.44, has panned out relatively well so far. At the low last week the Dow was down 8.7% and the S&P was off 10% from their April 8 closing levels. On an intraday basis from their April 26 highs to the May 25 lows the Dow and S&P had fallen 13.7% and 14.7% respectively. NASDAQ performed similarly, though rallied a bit further and corrected deeper.
But the overbought condition and exuberant sentiment readings from late April have diminished and the market is poised to rally at least over the short term. There is still some technical improvement needed as the Dow is logging its first Down Friday/Down Monday in 32 weeks and the major indices are struggling to reclaim their 200-day moving averages.
The first trading day of June is notoriously bullish with the Dow up nine of the last eleven years. The last two times the market was hammered on the first day of June, like it was today, was in 2002 and 2008. This was in the midst of the last two major market downturns. We are on the verge of entering bear market territory as we have been forecasting, but let’s listen to the indicators instead of drinking our own forecast Kool-Aid.
As we open the month of June, NASDAQ momentum has turned positive, however precariously. In the chart below, NASDAQ is trying to find support near the 200-day MA and its MACD Buy indicator turned positive on Friday. NASDAQ’s MACD Sell indicator is only slightly negative. We expect NASDAQ to challenge the Monthly Pivot Point at 2300 and the 50-day MA at about 2400 before rolling over and making a new low for this correction.
The 2300-2400 range, or higher is where we will be looking for MACD and other technical indicators to flash a sell signal. We will not be adding any additional bearish defensive positions as our existing bear fund and bond ETFs are quite sufficient, though we will be closing out other positions and tightening stops. See the May ETF Corner and Portfolio Updates for our latest advice.
