I keep hearing about this “reversal” yesterday that could be the turning point to this market. Typically I don’t like to analyze just the Dow Jones Industrial Average because it consists of only 30 stocks. However, of all of the major indexes, I think that the Dow Industrials tell the story the best:
I was taught at an early age to let my trendlines continue. Don’t cut them off for no reason because they’ll probably come into play in the future. Sure enough, here is a perfect example of just that. The “Neckline”, if you will, from the Inverse Head & Shoulders Pattern in the Dow is the green line connecting the February highs to the April highs. Oftentimes there is a retest of this neckline after the original breakout, in this case the one that took place in late April. Yesterday’s retest appears to be successful, but we are going to need to see some follow through today to confirm our thesis. More importantly we need to see some sector rotation into some of the more aggressive sectors that have been under-performing since February and out of the more defensive, now overextended, sectors like Healthcare and Consumer Staples. Financials, believe it or not, were the first to turn green yesterday and showed some relative strength on Monday as well.
It’s going to be an interesting day to say the least. Friday is options expiration so don’t be surprised if you see some wacky action for the rest of the week. Take a look at some of the other major averages and you’ll find a similar story. I felt that the Dow told the story the best, but check out the others for the full box score.