Good Morning, Traders. For today's commentary, we look at some technical phenomena that seems to indicate that the market will move lower over the coming week. In the middle of the chart below, note the descending triangle forming on the hourly $SPX chart. These formations generally lead to lower prices because of the psychological implications behind them. Essentially, for the descending triangle to form, we must assume that as time moves forward on the x axis, sellers are continually willing to accept less and less on the y axis. This is exactly what happened in the S&P on Friday as each subsequent bounce in the index was lower than the last, finally culminating in a close very close to the low. Coming into Monday's session, we can use the same "psycho-technical" analysis to ask ourselves how will buyers and sellers react if price moves below Friday's lows? Having already accepted less and less on each bounce, there will more than likely be capitulation on the part of the buyers below that level. This is the sort of en masse "throwing in of the towel" that ignites the next playable move. Keeping in mind that earnings season is upon us so anything can happen; however, this pattern, along with the "straight-lines" bookending the consolidation in the middle, indicates to me that any breach of Friday's lows pushes the S&P to 1230 rather quickly. That would represent the third test of this area in the last 10 days and as we know repeated attempts on pivots are indicative of those pivots eventually giving way. Bias remains down.

Focus List

PCG - PG&E Corporation
Industry - Utilities
Side - Long
Trigger - 41.10
Stop - 39.50 or low of weekly breakout bar
Target - 45.00+
Timeframe - multiweek to multimonth

Notes

• Utilities are one of the only bright spots amidst many bearish looking weekly sector charts
• Stop listed is under low of last week but can be tighter under low of weekly breakout bar if breakout is a big bodied candle with good volume
• Check monthlies (not shown) to see bullish pattern

IFF - International Flavors & Fragrances
Industry - Chemicals
Side - Short
Trigger - 34.22
Stop - 35.53
Target - 31.00
Timeframe - multiweek

Notes

• Volume patterns diverging from price on recent rally
• Target listed is to test 2005 lows
• Weekly inverted hammer sets up entry and stop parameters along with 200ma weekly (blue) resistance just above

ITY - Imperial Tobacco
Industry - Tobacco
Side - Long
Trigger - 64.78
Stop - 62.00
Target - 70.00+
Timeframe - multiweek to multimonth

Notes

• Like Utilities, this sector is stronger than most and is diverging from broad market indicating sector rotation into these names
• ADR, so trades in gaps - use caution and scale in
• GLH, BTI also looking similar in same sector and are on verge of breakout

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.