US & European markets at a crossroad

Yesterday, US & European markets dropped very sharply. The major losers are CAC40 (-3.13%); DAX (-3.81%); FTSE100 (-2.45%); DJIA (-2.91%); and S&P500 (-2.63%). The recent uptrend in these markets may have ended. In 3 of these markets, the 20-day SMA is poised to cut below the 50-day SMA (CAC40, DAX & FTSE100). In 4 of these markets, Head-&-Shoulders formations are sighted but their neckline support are still intact (DJIA, S&P500, DAX & CAC40). If these markets can rebound off the neckline support, then they are likely to resume their prior uptrend. However, if the neckline is violated, then the recent uptrend would have ended with a reversal and we are likely to see the start of a downtrend in the market. The next few days will be very crucial for these markets.


Chart 1: DJIA's daily chart as at July 2, 2009 (Source: Stockcharts.com)


Chart 2: S&P500's daily chart as at July 2, 2009 (Source: Stockcharts.com)


Chart 3: DAX's daily chart as at July 2, 2009 (Source: Stockcharts.com)


Chart 4: CAC40's daily chart as at July 2, 2009 (Source: Stockcharts.com)


Chart 5: FTSE100's daily chart as at July 2, 2009 (Source: Stockcharts.com)

While most Asian stock markets look healthier than their Western counterpart, I believe they would follow the direction set by the US & European markets in the weeks ahead.

PS- You may notice that the 100-day SMA lies about 3-4% below the current level in all 5 markets. While it would be expected to act as a support in a falling market, I hope that it could also perform the role as the second defensive line in the event the neckline of the H-&-S formation were to fall. In such a scenario, I hope that the market would rally off the 100-day SMA & regain its position above the neckline.