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Stocks Move Higher but Weeks Technicals Look Ominous

David Becker
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Stocks Move Higher but Weeks Technicals Look Ominous

US stocks are higher to start the trading session despite continued tensions with Russia as the US announced a new round of sanctions on the country. Last week the Nasdaq, which has generated headwinds for the broader markets, continued to slump which is an ominous sign for US equities.

The Nasdaq has become the leader of the US markets and has become a negative influence on broader indices. The Nasdaq lost -1.75% on Friday to lead the market lower once again. A head and shoulder pattern is in the process of forming which if broken could lead to a significant correction of US equities.

The ratio between the Nasdaq and the S&P 500 index continued to weaken last week, and has broken through horizontal trend line resistance. The ratio is the Nasdaq, divided by the S&P 500 index which shows strong outperformance in 2013.

The price pattern have points to the possibility that the recent bounce may be a “right shoulder” in a potential “head and shoulders” topping pattern. All this places an ominous outlook on stocks.

A head an shoulder occurs when prices move higher to form left resistance and then bounce back to new times, just to be rejected again and find that in its third attempt at a new high, stocks are met will robust selling. A head and shoulder pattern usually forms at the end of a stock rally, and when the neck line of the pattern is broken, a correction is said to be underway.

Social media stocks as well as biotech’s have been the leaders on the way down. Technology traders are now hanging their hats on Apple (NASDAQ:AAPL) to secure a new leadership role.

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