US markets may see correction ahead

The US markets look set for correction. DJIA & S&P500 are both pressing against the upside of the expanding triangle. Some called this pattern a "bugle" and over the past two weeks the "bugle" remained intact. The indicators are now giving negative reading. RSI, MACD & ADX are all pointing to a correction (see the red boxes). Compared these with the positive readings in March, just before the US markets rallied (see the blue boxes). How far would DJIA & S&P500 decline to? With all the positive economic news, I believe the correction would be quite mild, possibly to the 50-day SMA line. This means that DJIA & S&P500 should find support at 8750 & 950, respectively. If the 50-day SMA line failed to hold up the market, DJIA & S&P500 may test their 100-day SMA line support at 8500 & 910, respective.


Chart 1: DJIA's daily chart as at Aug 14, 2009 (Source: Stockcharts.com)


Chart 2: S&P500's daily chart as at Aug 14, 2009 (Source: Stockcharts.com)

How would the global equity markets react to a simultaneous correction in the US markets & Shanghai's SSEC? I believe that the near-term outlook for equity market is now turning negative, with more downside than upside. As such, it may be prudent to reduce our exposure to the market & keep some cash in reserve.