First before we talk about the status of the ZB indicator I wanted to show the famous Head and Shoulders SPX chart. Some of our newest members, welcome by the way, are quite new to trading and I want to make sure that the danger marker is understood. Here is a chart of the SPX as it stands after market on July 8th, 2009.
This daily chart shows clearly a left shoulder, a little deformed but there, a head and right shoulder. The neckline is right around 883 according to my crayon. Head-n-Shoulders (HNS) is not my thing but if I remember correctly, and if I don’t please correct me, we can expect a correction equal to number of points form the neckline to the top of the head. On June 11th the SPX hit 956 , the neckline is 883. That is a difference of 73 SPX points. If the pattern is correct we should go down 73 points from 883 which should bring us to 810 on the SPX. Those are my rough numbers and I just wanted to throw out a little technical work.
There are a couple of other points to be made on this chart, which is a very busy chart. I like to use a 200,100 and 50 day MA to set up overall trend. My colors are Red, White and Blue. When we are trending healthy in the correct direction the averages will fall into “natural” order with the 50 above the 100 and both above the 200. This ordering would be Red, White and Blue, which I remember as being good for America. Currently we are Red (50), Blue(200) and White(100). We appear to be sliding down the still negative sloping 200 DMA, which is now right at the neckline for our HNS pattern! You can also see that we are close to putting the averages into correct order. The $NDX is already in RWB order, so we will be watching for that to fail to confirm a failed 200DMA crossing.
Back to the Zweig Breadth indicator.
This is the ZB from the July 8th closing. We have talked in the past about how this breadth momentum indicator is good a making higher highs or lower highs to point out the winding up or winding down of market momentum. Since that May 4th high ZB reading, we are slowly loosing momentum with interspersed counter trend rallies, the last one being not so strong. Yesterday before the end-of-the-day rally the NYSE ZB was right at that lower blue trend line, making a lower low.
This is what the ZB on the NAZ exchange traded stock looks.
This indicator has made the lower low to keep in place the downward momentum. We are oversold here on the indicators and we should start a counter-trend rally any day now. Perhaps today. Any rally would put the HNS patter at risk. If there really is a PPT you can bet that they will do what is necessary to invalidate the HNS.
My strategy would be to take any long profits quickly until we see a change in momentum. There are dark clouds ahead between the HNS, the decreasing ZB and the early research I did on failed 200 DMA crossings. We could be heading toward March lows, but enjoy today’s sun while it is shining. Maybe a strong wind (earnings) will blow those dark clouds away.
Happy Trading
-RLT
