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Market Under Pressure


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As we head into Thanksgiving, I wanted to give you a quick technical picture of the stock market.

If you look at the image above, I have drawn blue circles around the short-term indicators indicators that show the market is extended to the upside and is likely to either (1) move sideways for a period of time or (2) pull back a bit to get the indicators back into normal range. If you look at each of the indicators, you can see that whenever it moves above the top indicator line it also represents a short-term top in the market (the red/black candlesticks graph in the middle is the Dow Jones Industrial Average, or our representation of the market). The market then proceeds to pull back a couple of percent (or in the case of the post Alibaba IPO, 9%).

I’ve also add two blue squares on the two trend indicators. You can see that the trend is weakening because the top black line is converging on the other indicator line.

A weakening trend and an overextended market are signs that we should have some profit taking – even if its just two or three percentage points – in the near future.

Its not a huge problem, but if you wanted to book some profits before year-end, you might want to take these indicators as a sign that the time is right to do so.

Have a Happy Thanksgiving and I will see you back on the blog soon – until then, how about a Twofer for the Holiday!