S&P 500 – The short-term charts look weak but close to oversold levels. This means we could get a short rally next week if economic numbers are not disappointing. We do have a double top at 1130 and another at 1100 and they are resistance levels. The Labor Day holiday will affect trading this week and next with smaller than normal volumes.

On the longer-term charts, the S&P fell below its 50 week moving average (1100) and was unable to climb above last week, possibly turning it into a resistance level if we are unable to make a move above it in the next few weeks.

The 1100 level is becoming an important psychological barrier for the markets. If we are unable to break through it is likely we move back to the 1050 level and then 1000.

On the weekly chart you can see a clear head and shoulders top tracing itself out. Right shoulders can drag themselves out for sometime so this may take a bit longer than expected to resolve itself.

It is not a pretty chart but 1000 will provide a major psychological support level for the market.

NASDAQ – The short-term charts show an index searching for direction after the sharp drop 2 weeks ago. We seem to be rattling around between 2225 and 2160. Just like the S&P we may see a short rally next week with the Labor Day holiday.

The longer-term charts are once again telling the story. The weekly charts shows a golden cross with the 50 week moving average oh so slightly above the 200 week moving average but last weeks rally was not able to take us above the 50 week or 200 week moving averages (2237 and 2220 respectively).

More importantly, the head and shoulders top is much more pronounced here than the S&P. Traders are looking at these charts with trepidation.

TSX – Clear downtrend on both the short and long term charts with prices making lower highs and lower lows. The TSX is at the upper boundary of its trading range and seems to be looking for direction.

The 50 week moving average has become a support level at 11622 with moves below being met with buying. If the TSX falls breaks below 11622 we are likely to see a move down to 11000 which would be the lower end of the trading range.

Economic statistics out of the US are likely to guide the Canadian market as investors will worry that a slowdown in the US will filter back to Canada.

Commentary

The US stock market is at a critical level. Economic statistics have been weak signaling a slowdown and there is the potential for 2nd Quarter GDP to eventually come in a full percent lower than first reported. Markets have been pricing in strong economic growth and it appears as though growth will be coming in below forecasts.

In addition, we have a Hindenburg Omen signal which was confirmed on Thursday and Friday of last week. The Hindenburg Omen does not guarantee a crash but it does signal significant underlying weakness in the stock market. If the market does move lower there is a chance some of the charting signals resolve themselves in a manner which will disappoint investors.

This is not a time when investors should be adding to equity positions unless you are using short ETF’s as a hedge. Investors should be on the sidelines waiting for a trend to establish itself and getting cash ready to allocate.

Once again, I am not calling for a crash but investors should be aware of what Mr. Market is telling us. Economic and technical indicators are showing weakness and investors should be on the sidelines until a trend establishes itself.

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