Rally stalls

q0827.pngThe stock indexes were modestly lower on lighter volume today. This is not surprising since this is the last week before Labor Day, although there will be several news items that could cause large movements with many traders on vacation.

The QQQQ ran right up to the lower standard error band, with the channel looking as if it wants to roll over. The double stochastic in the sub-graph below is in the overbought region, and the faster stochastic already heading downward. There is no divergence indicated yet, however if momentum rolls over a re-test of the spike low of eight sessions ago could occur. A successful test of that area, or even holding a level half the distance down to that low, could set up a bullish next leg, and would help confirm that the spike of eight sessions ago was a bottom that will likely hold. As it stands now the overall trend is still to the downside, despite the recent bounce. Prices are also trading in the region of prior congestion and consequently an area of resistance. A move down now would seem to be the path of least resistance. If that occurs the area where prices stop declining will shed a lot of light on whether the market is still in a longer term bull mode, or if this is the beginning of a longer term bearish mode. Of course it is possible prices will continue higher to challenge the two higher pivots overhead without re-testing the lows, but I think that scenario would leave the market in a less stable position longer term.
xlf0827.pngSince much of the recent drop was blamed on the financials it might be helpful to view that sector now. There was a double bottom eight bars back, at the same point as the V spike bottom in the broader indexes. The standard error and regression curve have been rolling over for some time, and momentum has rolled over to the down-side. There also seems to be much resistance at the lower error band, and today the three day pivot (yellow dot) was penetrated. This chart indicates a re-test back down, which would help confirm my suspicion about the overall market.

Again, Gold is trending sideways and all my indicators are mixed.  

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