Market Update: Possible Bounce before next move lower...

I believe the markets may try to recover with a possible rally attempt early in the week. There was some pretty good strength by the bulls on Friday as pricing approached the 1018-1020 level. Watch this level closely, on the 60min SPX chart it looks like a possible double bottom which will ultimately lead to a bounce that I suspect exhausts around the 1035-1040 level around the 38.2% retracement. Volume will be very important tomorrow.

Remember last Monday's rally was on very low volume and ultimately failed. I think the market will give the bulls one more attempt, and they better show up, because any weak showing will give the bears more confidence that the next move is lower. Remember, as I've said before, the beginning of the week/month is not nearly as important as the end. I expect we'll see a new low before the end of the week which will lead to continued bearish action in the weeks to come. With earnings season beginning this week, these numbers better come in pretty freakin' good to support this 60% market rally. Less cost cutting, more revenue growth.

The Nasdaq

To compare to the chart posted above, here is a picture of the Nasdaq. Despite Apple being up 2-3% on Friday because of some ridiculous $250 price target (someone at UBS loves his iPhone a little too much), the Nasdaq still led the market lower on Thursday and Friday. I'm not too sure if this is anything significant, but the Nasdaq has shown relative strength ever since November of last year. If it was a market leader to the upside and a Beta of 1.13 on the QQQQ's I would suspect it would be the market leader to the downside.

Head and Shoulders = Continuation?

Lastly, I've really started to believe in the Head & Shoulders Continuation pattern. After the big one in July in the S&P I've started to doubt the "highly probable" head and shoulders reversal pattern. Here is the chart of the 60m AAPL and the pattern looks textbook. Thursdays EOD breakdown appears to break the neckline, but I guess without the lack of confirmation, and an unexpected target price upgrade, AAPL rallied on Friday right back up to the top of the right shoulder.

-By Market Mike

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