-Dugald Malcolm

Montreal, Canada.

After trading sideways for almost two months, the major US indices finally made a break out at the end of December. Since November 9th, the S&P 500, DOW and the Nasdaq were all trading within a rectangle pattern up until a Christmas rally helped break them out of their boxes. Since then, they have managed to make advances into the new year - that is until two days ago, when things started to turn around.

I had been so anxiously awaiting a decisive move out of the monotonous sideways pattern of the end of last year that I was glad to see the markets make their Christmas breakout. On closer inspection, however, this Christmas gift to investors seemed to more resemble a lump of coal. As you can see on the chart above, the break above resistance that occurred around Christmas was accompanied by very little volume. It turns out, this breakout was in no way a decisive bullish move because the volume was just not there to support it. While a first retest of the former resistance level at 1115 seemed to hold on new year's eve, we see in today's market action, that a second retest of 1115 is not providing the support that the bulls had hoped for. What's more, this move down is confirmed by increased volume.

1115 is significant not only because it was the level of former resistance turned support, but it also represents the 50 day moving average, which is currently at 1114.88 on the chart of the S&P 500. Similar breaching of the 50 day moving average is also occurring on the chart of the DOW. What's more, as demonstrated on the chart of the DOW below, the two indices are breaking their respective upward trend lines that have been in place since the March lows.

Other signs on the chart that momentum is shifting in favour of the bears are other technical indicators, such as the rsi, stochastic and MACD. As seen on the chart of the S&P, the stochastic and MACD have begun to rollover in the last couple of trading days. If the bulls have any fighting chance left, we will need to see a close above the 1115 level on the S&P 500. So far this morning, it isn't looking promising.