Although the equity markets really are not doing much, I feel very uptight right now. Why? Take a look at the enclosed daily chart of the S&P 500. Let's notice that today marks the third session of weakness, and the decline has pressed slightly beneath the rising 20-day moving aveage (now at 1070) and, more importantly, is testing the July-October up trendline (1061.80). So why am I so uptight? Well, in such circumstances, given the juxtaposition of the SPX and the above-mentioned important support factors, the market either will ricochet off of the lines with power, or break below them, thereby triggering a potentially nasty decline (another 20 S&P points for starters). I really do not know which scenario to expect right now, but the bears have control of near term market direction, so I will go with a breakdown that violates the July-Octjober trendline on the way to 1045/40 next.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.