- Dugald Malcolm

Montreal, Canada

The cross of the short term upward trend line I had been writing about at the beginning of the month was eventually crossed.

On April 16th, the S&P 500 broke the rising line of support following the formation of a doji candlestick on the daily chart. A doji candlestick, resembling a plus sign, forms when the market closes at or close to where it opened. It marks indecision between the buyers and the sellers. Any indecision, however, was swept away on the 16th when prices moved decisively lower, breaking the uptrend on significantly high volume of over 8.1 billion shares - a level approximately twice the average.

Over the next few days, the market appeared as if it was bouncing back. Buyers came back and pushed the market higher, even managing to eke out a slightly higher new high. All their hopes, however, were soon shattered. On Tuesday, only a day after putting in a new intraday high, the sellers returned with a vengeance. The S&P 500 closed 28 points lower, it's first big down day of over 2% since early February.

The stochastic and MACD both confirmed the negative move, each making their respective bearish cross to the downside. Despite this, it does not seem that the current trend is down. The ADX line, a good indicator in determining the direction and strength of a trend is showing the exact same readings for both the +DI and -DI lines. This tells us that we are in a state of trendlessness, with markets moving sideways. This is not surprising, as the market has been on quite the tear as of late. A period of consolidation might give the market the much needed chance to catch its breath before it resumes its bullish trend - assuming that we don't see a move to the downside.

I have marked on the above daily chart the current upper and lower boundaries of the current sideways movement. To breakout to the upside, the S&P 500 would need to close above the intraday high put in on Monday. Alternatively, the market would need to close below the low put in on Tuesday to confirm the commencement of a negative trend. With the extended levels we are currently at along with the couple of sell-off days on high volume we recently witnessed, perhaps the old adage "sell in May and go away" might be good idea should the latter breakdown occur.

Have a good weekend!