No Reason to Panic - Yet
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With the market selling off into this weekend, and with all the talk about potential spillover from Cyprus, and with more talk about an imminent market correction, and after learning this morning that the jobs picture remains problematic, the temptation for a gloomy market outlook is natural. However, the charts below indicate that markets remain above support levels, and perhaps suggest there's no reason to panic yet.
The S&P 500 Index continues to trend within three bullish trend channels of varying degree. The major channel is shown as the red parallel lines, while the minor one appears in yellow. The small blue channel, the least significant of the three, represents the minor-minor channel. Notice that the initial support trend line rendered by the minor-minor channel remains intact, even as the market has sold off this week.
The next chart is the Dow Jones Transportations Average Index chart. This index has been a leader during this most recent rally. Notice how the index remains solidly in its bullish trend channel, which is depicted in blue. Also note how the index moved above its all-time high, which is represented by the horizontal white line. That old all-time high now serves as initial support for the index. Finally, notice the text book inverted head and shoulders pattern that is present on the chart. The shoulders and head are highlighted by the red horizontal lines, while the neckline represented by the old all-time high is shown in white. Large bullish ramifications remain intact as long as this pattern remains in place. A large penetration down through the neckline with momentum would negate this pattern.
In conclusion, maybe this week's break is the beginning of a significant market correction. It's certainly possible. On the other hand, these charts confirm that both the S&P 500 Index and the Dow Transports Index still remain above initial support levels. Clearly, these support levels should be monitored, and any future failure of their support would suggest the potential for an even larger correction. But until those levels are breached with momentum, perhaps there's no reason to panic yet.
Chief Investment Strategist
Preferred Planning Concepts, LLC
2800 South River Road #240
Des Plaines, IL 60018
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.
© 2013, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.
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