Some stock market sell setups are developing now

Simply outrageous is how long Dow Jones and S&P 500 have been able to maintain their levels. In my opinion, both indexes have profited from the Ukraine crisis. The capital flight from Europe beginning in February led to the situation that both indexes whose orientation is per se rather countercyclical, were thrust by safe-haven respects again that has layered all the negative seasonal and cyclical aspects so far.

On grounds of the hitherto dominating election cycle, the prevailing overbought indicator situation in the monthly time frame (at the latest since January), the existing brutal negative indicator-divergences in the weekly time frame and the old stock-exchange wisdom “negative January performance points to a strong correction in the first half-year”, they were technically supposed to correct substantially, not after the middle of April. Both are producing new all-time highs however. Yet everything is bound to get to an end sometime.

I think that for both indexes, by reaching the new all-time highs of last Tuesday the party is over for the time being, both US major indexes now following the important procyclical oriented US indexes as for instance the Russel 2000 Small Cap and the NASDAQ-100 to the summer correction.

So far, both Russel 2000 and NASDAQ-100 have performed more or less exactly the way forecast by the seasonality of the midterm election year: The summer correction starts in spring. Both indexes topped out at the beginning of March. Thenceforth they have shown a crystal-clear downtrend on daily base with lower daily highs and lower daily lows – correction mode.

The NASDAQ-100 delivered a monthly reversal candle in April. Since this monthly reversal candle appeared at an important monthly resistance in the ruling monthly 5 Candle GUNNER24 Up – at the 4th double arc resistance that withal is this bull’s main target – we’ll use this sell candle for the short-entry on monthly base notified here... Thereby the leader of the whole US stock-market bull turned first into its summer correction:

The April candle per se is showing an extremely interesting performance. In one go, initially at the high it worked off an important GUNNER24 Resistance: The upper line of the first double arc. This resistance was worked off just at the beginning of the month (04/02/2014) at 3676. Then the index fell rapidly into the April low – reached on 04/15 at 3414 – thus testing an important monthly support, the currently most dominating and strongest one: The “Support Angle” visible in the chart above.

Within 3 weeks, the currently strongest monthly resistance as well as the strongest monthly support were worked off thereby! The bounce of the April low through the April close is giving now a first clear clue to the beleaguered condition of the market: For, at this bounce into the monthly close the index did not achieve to overcome the March close. Thus, a clear sell-signal for the April remains to be stated. The late April bounce might also have avoided the sell signal. 8 points up would have averted the sell signal. Technically this would have been a glob for this market.

Next, the second clue that the market is in its correction now: The April low is lower than the February low and additionally: May is not supposed to attain the April high! As a result, this would be the second consecutive lower high on monthly base. It’s the third clue that the index on monthly base is faltering.

Yet still the current correction keeps on a high level pointing rather to strength than to weakness for the coming summer months. That means for us that the possibility of any correction through June/July/August to turn out most “paltry” is recognizable already…

At the moment, I don’t tip any more the hitherto lowest possible correction target at 3080 to happen. I think it’s going to be 3300 maximally. We are talking about the surroundings of the monthly horizontal support in the setup above that springs from the intersection point of the upper line of the 3rd double arc with the beginning of the setup. For this correction target is also to be derived in the currently dominating up setup in the weekly time frame. So thereby we get onto the first sell setup I’d like to present you today:

The NASDAQ-100 is currently orienting itself by the very first impulse that starts at the late June 2013 low. Initial impulse is 8 weeks. What we will have to pay attention to and be able to derive from/forecast is the following:

The 3rd double arc is a strong resistance but not insuperable. At the highs, the market is trying to produce a close within the lines at altogether 5 out of 6 candles… we can see 5 dips into the lines of the 3rd. Technically it’s a strong performance at the highs.

We don’t see any weekly close within the lines of the 3rd double arc so far. Yet we realize that especially the performance of last week is strong again. It is piercing far into the lines of the 3rd. Certainly the last weekly close confirms just below and pretty close to the lower line of the 3rd that the market is still layered by the dominance of the 3rd, but this dominance starts macerating.

Moreover, we see that the decline after the March 2014 top was stopped super powerfully by the 1*1 Gann Angle Support. At the April lows we don’t recognize any weekly close below the 1*1 angle, just a marginal dip beneath (green circle) that in turn has been escorting the market upwards again since the April lows. It didn’t come to a second direct test of the 1*1 Angle after the April lows

==> This is what a correction in the uptrend performs like. I mean, from the year-highs at the upper line of the 3rd to the 1*1 Gann Angle support it’s the matter of a wave A of an ABC correction in the uptrend. For 5 weeks, the index has been correcting upwards in a B wave. What shall have to follow is another downwards wave, the C wave. This one is supposed to reach maximally the 3305, visible in the monthly setup above. Im the weekly setup above, in these surroundings a horizontal support takes course starting from the lower line of the 1st double arc = 3318.

This is our target for the summer correction. The confirmation that the 3rd double arc resistance wants/has to keep on pressing the index down will be a weekly close below the currently strongest weekly support, the 1*1 Gann Angle! We’ll sell the NASDAQ-100 on weekly base if it produces a weekly close below the 3513 within the coming three weeks. Target in this case is 3318. SL is a weekly close above the 3rd double arc resistance.

If the NASDAQ-100 remains above the 3513 on weekly closing base for the next 5 weeks, the 3414 low of 04/15/2014 will be most likely to be the final low of the whole year 2014 already!

The second sell setup I present you concerns the S&P 500 on monthly base:

For months the index has been stuck beneath its main resistance = this bull’s main target. It is the 5th double arc in the ruling monthly 3 Candle up. On monthly base, it is going to be tight for this index though as well. We’ll sell a May close below 1870. That would mean a reversal candle, the very first confirmation for the 5th double arc to be really able to turn the market respectively to force into a significant change in trend or at least in to a correction shaped however.

The possible May reversal candle would be the 6th of its kind since the bull market started at the 2009 lows. I just denoted “RV” in the chart above all the reversal candles that have shown in the current bull-run. Out of them, actually just 2 occasions have led to significant that’s to say deeper and longer correction phases on monthly base. Only one of them rang in a deep price correction and a correction phase lasting 6 months. So, now again we have to assume that the potential of this correction in terms of time as well as price is extremely limited!

I think the correction is maximally able to head for the dominating 2*1 Rally Angle. That is the 1770 surroundings! From there, a new impulsive upleg on monthly base is supposed to start heaving the index up to the 2000 mark until the end of 2014. SL for the short-trade is a monthly close above the 5th double arc!

The short-term picture on the S&P 500 points to a May close below 1870 to appear most likely:

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