Tag Archives: charts

Key Charts To Watch As Crude Oil’s Bust Continues

Crude oil’s plunge continued on Tuesday due to fears of a growing glut and economic slowdown. West Texas Intermediate crude oil fell 7.3% to $46.24 a barrel, while Brent crude oil fell 5.6% to $56.26 a barrel. Crude oil’s ongoing bear market confirms the warning I published on November 6th called “Is A Crude Oil Liquidation Event Ahead?”

After today’s drop, West Texas Intermediate crude oil is down approximately 40% since early-October:

WTI Crude Daily

Brent crude oil is down approximately 35% since early-October:

Brent Crude Oil Daily

In recent weeks, WTI crude oil broke below its uptrend line that started in early-2016 and the key $50 level, both of which are important technical breakdowns. The next price targets to watch are $40, then $30, and so on.

WTI Crude Weekly

Brent crude oil recently broke below both its uptrend line and its key $60 level, which is a bearish omen that puts $50, $40, and $30 into play as the next price targets/support levels to watch.

Brent Weekly

As I discussed a few weeks ago, crude oil is plunging because it is pricing in much slower economic growth and a likely recession, as well as growing inventories. I am particularly worried about plunging oil prices because I believe that it is going to pop the shale energy bubble that I have been warning about for years.

Here’s what I wrote in Forbes in 2014:

I am also growing increasingly concerned that the U.S. shale energy boom is actually another post-2009 economic bubble (it would be a part of the commodities bubble). In a zero-percent interest rate environment like we are currently experiencing, any economic boom can devolve into a bubble. Shale energy extraction is a very capital-intensive business that relies heavily on cheap credit to survive. Shale oil wells experience much faster decline rates than conventional oil wells, which means that energy companies must keep drilling at a furious pace just to maintain their production – a very costly proposition that is typically funded by copious amounts of debt.

Here’s what I wrote in Forbes in September 2018, when I summarized the shale energy bubble:

U.S. shale energy boom/energy junk bonds: This boom/bubble is closely related to the corporate debt bubble discussed above. Extracting oil and gas from shale via fracking is extremely capital-intensive and would not be feasible in a normal interest rate environment. Thanks to the artificially low interest rate environment since the Great Recession, the shale energy industry’s net debt surged to $200 billion in 2015 – a 300% increase from 2005. Rising interest rates and the bursting of the corporate debt/junk bond bubble will cause a major bust in the shale energy industry.

The oil price plunge and overall rising interest rate environment is causing high yield or “junk” bonds to sink. The chart below shows that the HYG high yield corporate bond ETF recently broke below a key technical level known as a neckline, which is a signal that further bearish action is likely ahead (which means that junk bond yields will rise). I believe that this is yet another sign that the shale energy bubble is at risk of popping.

HYG

For now, I am watching $40 and $50 a barrel as the next price targets in WTI and Brent crude oil. The HYG high yield corporate bond ETF is likely to gun for its early-2016 lows in the course of this energy bust.

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Here Are The Key Levels To Watch In The S&P 500

With all of the incessant market gyrations this year, most traders and investors are going into the end of the year extremely confused. The simple charts I’ve been watching and showing help to make sense of the noise and show a big picture point of view.

In October, the S&P 500 broke below its uptrend line that started in early-2016, which is an important and concerning technical breakdown. The S&P 500 is still holding above its 2,550 to 2,600 support zone that formed at the early-2018 lows. If this level is broken decisively, it would give another bearish confirmation signal.

SP500 Weekly

The chart below shows the 2,550 to 2,600 support zone on the daily chart:

SP500 Daily

If the S&P 500 is unable to break below the 2,550 to 2,600 support zone in the short-term, it may stage a bounce or relief rally off that support. While such a rally would assuage the fears of many investors, it’s important to beware of the risk that it may be the right shoulder of a bearish head and shoulders pattern (I’m not predicting that it is or isn’t – I’m just saying to be mindful of that scenario).Head and shoulders pattern

I’m concerned about a serious bear market ahead because of the massive bubble that formed in the U.S. stock market – please watch my video presentation to learn more:

For now, I am watching if the S&P 500 can close decisively below the 2,550 to 2,600 support zone or if it stages a bounce off this level.

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Here Are The Key Charts You Should Be Watching

I’ve shown many charts over the past few weeks, so I wanted to use today’s post to update them after the Fed’s Jerome Powell took more of a dovish tone regarding upcoming Fed Funds rate hikes, which caused stocks and other risk assets to rally in relief. Surprisingly, none of the important technical breakdowns I showed in recent weeks were negated by this week’s action.

As I’ve been showing since October, the S&P 500 broke below its uptrend line that started in early-2016, which I view as an important technical breakdown. Despite this week’s rally, the index is still below this important level. The S&P 500 is still holding above its 2,550 to 2,600 support zone that formed at the early-2018 lows. If this level is broken decisively, it would give another bearish confirmation signal. As I said one month ago, I am watching if the S&P 500 forms a bearish head and shoulders pattern.

S&P 500

The next chart shows the LQD iShares Investment Grade Corporate Bond ETF. I said that the 110 to 115 support zone is key line in the sand to watch. If LQD closes below this zone in a convincing manner, it would likely foreshadow an even more powerful bond and stock market bust ahead. This week’s action did nothing to change my view.

LQD

The chart below shows the VIX Volatility Index, which I said appeared to be forming a triangle pattern that may foreshadow another powerful move ahead. If the VIX breaks out of this pattern in a convincing manner, it would likely lead to even higher volatility and fear (which would correspond with another leg down in the stock market). On the other hand, if the VIX breaks down from this pattern, it could be the sign of a more extended market bounce or Santa Claus rally ahead. Interestingly, this week’s market bounce and Powell’s comments did not cause this pattern to break down.

VIX

Last week, I showed the key levels to watch in WTI crude oil after its shocking plunge in the past month. I explained that oil broke below its important uptrend line that started in early-2016, which is not a good sign (this breakdown is very similar to the S&P 500’s breakdown). WTI crude oil is sitting right above its key $50 level. A convincing break below $50 would likely signal further bearish action.

WTI

In last week’s crude oil update, I explained that crude oil’s plunge caused an important technical breakdown in the HYG high yield corporate bond ETF (because a good portion of outstanding junk bonds have been issued by shale energy companies). In recent years, bearish moves in crude oil often lead to bearish moves in the HYG ETF and vice versa. I believe HYG’s breakdown is yet another sign that the shale energy bubble is on the verge of popping. This week’s market bounce and Powell’s comments did not negate this bearish breakdown.

HYG

I am watching how these markets act at the key levels discussed and I will provide periodic updates when there are important developments.

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Why Another Volatility Spike May Be Ahead

In early October, when the U.S. stock market had reached an all-time high and investor sentiment was extremely complacent, I published a warning in Forbes called “Why Another Market Volatility Surge Is Likely Ahead.” I showed three indicators that I believed pointed to an imminent volatility spike, most likely as a result of a bearish market movement. Sure enough, that volatility spike came just a couple days later as the U.S. stock market corrected very sharply. Since peaking in early-October, market volatility (as measured by the VIX Volatility Index) has calmed down a bit as U.S. stock indices staged a bounce. Unfortunately, I am concerned that this most recent period of relative calm may result in yet another volatility spike, provided there is proper technical confirmation.

The chart below shows the VIX Volatility Index, which appears to be forming a triangle pattern that may indicate that another big move is ahead. If the VIX breaks out of this pattern in a convincing manner, it would likely lead to even higher volatility and fear (which would correspond with another leg down in the stock market). On the other hand, if the VIX breaks down from this pattern, it could be the sign of a more extended market bounce or Santa Claus rally ahead.

Volatility Index

In my early-October volatility warning, one of the charts I showed was the inverted 10-year/2-year Treasury spread and how it leads the VIX by approximately three years. According to this logic, the January and October volatility spikes were only the beginning of a much larger bullish volatility cycle (ie., one that accompanies a full-blown bear market).

Yield Curve Volatility

If the VIX breaks to the upside, it would coincide with the S&P 500 testing its 2,550 to 2,600 support zone that formed at the early-2018 lows. As I’ve said in the past, if the S&P 500 breaks that support zone in a convincing manner, an even more extensive bearish move is likely to occur.

S&P 500

For now, I am watching which way the S&P 500 and VIX break out for confirmation.

Please follow me on LinkedIn and Twitter to keep up with my updates.

If you have any questions about anything I wrote in this piece or would like to learn how Clarity Financial can help you preserve and grow your wealth in the dangerous financial environment ahead, please contact me here.

Here’s What To Watch As Oil’s Liquidation Sell-Off Continues

Last week, I wrote a piece in which I warned about the risk of a sharp liquidation sell-off in the crude oil market as speculators are forced to jettison their massive 500,000 futures contract long position. Since then, crude oil continues to sell off very hard and was down nearly 8% on Tuesday alone. Crude oil is an economically sensitive asset and may be selling off as it prices in the rising risk of a recession in the not-too-distant future.

West Texas Intermediate (WTI) crude oil broke below its key $65 support level at the start of this month and tested the $55 support level during Tuesday’s sell-off. There is a good chance of a short-term bounce at the $55 level. If WTI crude oil eventually closes below the $55 support level in a decisive manner, it would likely foreshadow further weakness.

Crude Oil Daily

The weekly chart shows how WTI crude oil recently broke below its uptrend line that started in early-2016 (just like the S&P 500 did), which is a worrisome sign.

Crude Oil Weekly

As I’ve been pointing out since the start of this year, crude oil futures speculators or the “dumb money” (the red line under the chart) have built a massive long position in WTI crude oil of just under 500,000 net futures contracts. There is a very real risk that these speculators will be forced to liquidate if the sell-off continues, which would greatly exacerbate the sell-off.

Crude Oil Monthly

After going sideways for five months, the U.S. dollar has recently resumed its rally that started in the spring. On Monday, the U.S. Dollar Index broke above its key 97 resistance level that formed at the index’s peak in August. If the index manages to stay above this level, it may signal even more strength ahead. The dollar is strengthening because U.S. interest rates have been rising for the past couple years, which makes the U.S. currency more attractive relative to foreign currencies.

The U.S. Dollar Index is very important to watch due to its significant influence on other markets, particularly commodities and emerging market equities. Bullish moves in the U.S. dollar are typically bearish for commodities (including energy and metals) and emerging markets, and vice versa. If the U.S. Dollar Index continues to rise after Monday’s breakout, it would spell even more pain for commodities and EMs.

Dollar

For now, I am watching how WTI crude oil acts at its key $55 support level and if the U.S. dollar’s Monday breakout holds.

If you have any questions about anything I wrote in this piece or would like to learn how Clarity Financial can help you preserve and grow your wealth, please contact me here.

Watch This Breakout In The U.S. Dollar

After going sideways for five months, the U.S. has recently resumed its rally that started in the spring. On Monday, the U.S. Dollar Index broke above its key 97 resistance level that formed at the index’s peak in August. If the index manages to stay above this level, it may signal even more strength ahead. The dollar is strengthening because U.S. interest rates have been rising for the past couple years, which makes the U.S. currency more attractive relative to foreign currencies.

Dollar Daily

The weekly U.S. Dollar Index charts shows the key longer-term levels and price targets to watch. If today’s breakout above 97 holds, the next price target to watch is the 100 resistance level that has acted as a key support and resistance level for the past four years.

Dollar Weekly

Even if you do not trade currencies, the U.S. Dollar Index is very important to watch due to its significant influence on other markets, particularly commodities and emerging market equities. Bullish moves in the U.S. dollar are typically bearish for commodities (including energy and metals) and emerging markets, and vice versa. If the U.S. Dollar Index continues to rise after today’s breakout, it would spell even more pain for commodities and EMs. Further, approximately 40% of S&P 500 earnings come from abroad. Needless to say be on the lookout for earnings estimate downgrades over the coming months.

The October Market Breakdown Is Still Valid

After plunging for most of October, the U.S. stock market rebounded sharply in the last two weeks in anticipation of the U.S. mid-term elections. Though the market soared the day after the election, the rally petered out on Thursday and Friday. This means that the breakdown from the important three-year old uptrend line is still valid. The fact that the market was unable to close above this level on the weekly chart after testing it is quite concerning and may foreshadow further weakness ahead. 

S&P 500

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

The S&P 500 Is Attempting To Negate Its October Breakdown

Market sentiment has shifted significantly now that the U.S. mid-term election is over and Congress is gridlocked. The S&P 500 jumped 2.12% and the Nasdaq Composite surged 2.64%. The S&P 500’s rally caused it to break back above a key three-year-old uptrend line that it broke below two weeks ago. If the index is able to close above this uptrend line on the weekly chart, it will have negated the bearish signal given when it broke the trendline. A close on the weekly chart is needed to confirm this move.

S&P 500

Please review our Chief Investment Strategist Lance Roberts’ most recent newsletter to learn how we are positioning in this market.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

Is A Crude Oil Liquidation Event Ahead?

West Texas Intermediate (WTI) crude oil is down approximately 20% since the start of October, putting it into bear market territory. Crude oil’s rout is due largely to reduction of the severity of the sanctions placed by the U.S. on Iran as well as the financial market and economic fears that have resurfaced in the past month.

WTI crude oil broke below the key $65 per barrel level, which is now a resistance level, which is a sign of technical weakness. Crude oil would need to close back above this level in a convincing manner in order to negate this breakdown.

Crude Oil Daily

The weekly crude oil chart shows how WTI crude oil broke below its uptrend line that started in mid-2017. If the breakdown remains intact, the next key level and price target to watch is the $55 support level that formed at the late-2016/early-2017 highs.Crude Oil Weekly

As I’ve been pointing out since the start of this year, crude oil futures speculators or the “dumb money” (the red line under the chart) have built a massive long position in WTI crude oil of just under 500,000 net futures contracts. There is a very real risk that these speculators will be forced to liquidate if the sell-off continues, which would greatly exacerbate the sell-off.

Crude Oil Monthly

Crude oil is an economically sensitive asset and may be selling off as it prices in the rising risk of a recession in the not-too-distant future.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

Stocks Aren’t Out Of The Woods Despite This Week’s Bounce

After last week’s sharp decline, stocks bounced a bit this week, and the talking heads on TV could hardly contain themselves. Unfortunately, this week’s bounce does absolutely nothing to negate the major technical breakdown that occurred last week. 

According to the chart below, the S&P 500 is still below its uptrend line, which means that the breakdown is still intact. The uptrend line is now an overhead resistance level. All of the movement that occurs between this line and the 2,550 to 2,600 support zone (the early-2018 lows) is basically randomness or “noise,” not “signal.” The S&P 500 would need to break back above its former uptrend line in a convincing manner in order to negate the breakdown. As I’ve been saying, the S&P 500 is likely to continue testing its 2,550 to 2,600 support zone before it’s able to stage a decent bounce. If the index closes below this zone, it would likely signal further declines ahead.S&P 500 ChartThe Nasdaq Composite index is still below its uptrend line that it broke last week, which means that the breakdown is still intact:

Nasdaq ChartI don’t expect much of a rebound until U.S. stock indices test their early-2018 lows, which means that the markets are likely to go even lower in the short-term. Even if/when we get a bounce, it’s not much to get excited about because it is likely to only be a short-term technical bounce or relief rally rather than a sustainable phase of the bull market. I have been warning that we are in a dangerous stock market bubble (please watch my presentation to learn more), so the breakdown of the past few weeks is very concerning.

Please review our Chief Investment Strategist Lance Roberts’ most recent newsletter to learn how we are positioning in this market.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

Does Today’s Bounce Mean The Sell-Off Is Over?

The Dow was up 241 points today and the Bubble Heads already think it’s “back to the races again.” I’m still cautioning “not so fast!,” however. Nothing has changed technically since last week’s major technical breakdown that caused the bellwether S&P 500 to close below a very important uptrend line that started in early-2016. The “Godfather” of chart analysis Ralph Acampora feels the same way as me and said that the “damage done to the stock market is much, much worse” than anyone is talking about.

According to the chart below, the S&P 500 is still below its uptrend line, which means that the breakdown is still intact. The uptrend line is now an overhead resistance level. All of the movement that occurs between this line and the 2,550 to 2,600 support zone (the early-2018 lows) is basically randomness or “noise,” not “signal.” The S&P 500 would need to break back above its former uptrend line in a convincing manner in order to negate the breakdown. As I’ve been saying, the S&P 500 is likely to continue testing its 2,550 to 2,600 support zone before its able to stage a decent bounce. If the index closes below this zone, it would likely signal further declines ahead.

S&P 500 Chart

Despite the bounce of the past two days, the Nasdaq Composite index is still below its uptrend line that it broke last week, which means that the breakdown is still intact:

Nasdaq Chart

As I explained yesterday, I am watching if a bearish head and shoulders pattern is forming in the S&P 500 and other major U.S. stock indices. If we are actually following this pattern, the left shoulder was the late-2017 surge and early-2018 plunge, the head was the summer surge and October plunge, the S&P 500 would have further to drop in order to test its neckline, and a final “dead cat bounce” would be ahead as the right shoulder forms. Head And Shoulders

I am not predicting or guaranteeing that the market is forming a head and shoulders topping pattern. I am simply curious to see if we are forming this pattern, so I am taking a “wait and see” approach. Importantly, technical analysis is not a guarantee of future outcomes. It is the analysis of previous price trends in order to apply probabilities to our portfolio management. What this analysis clearly suggests is an environment of mounting risks in the markets which our entire portfolio management team at Real Investment Advice and Clarity Financial have been keenly focused on.

As portfolio managers, we are aware of the damage sudden and unexpected downdrafts in markets can have on invested capital. Our team produces commentary each week which discusses the near term trends of the market and how we are navigating the increasingly dangerous waters of an overvalued, late cycle, bull market. If you tired of being told to just “ride it out,” and are concerned about growing your wealth, and protecting your financial future, click here to ask me a question to find out more.

The Market Is Gunning For Its Early-2018 Lows

After last week’s powerful sell-off, the U.S. stock market opened much higher this morning, with the Dow up as much as 352 points. Mainstream investors and TV commentators were excited, as they usually are, that the sell-off may have created an excellent “dip-buying” opportunity. I wasn’t buying it one bit, however:

Last week, I wrote that “the market’s trend breakdown had been confirmed” because the U.S. market closed below its important uptrend line that began formed in early-2016. In my mind, this morning’s market pop was nothing to get excited about because the U.S. stock indices were still below their important trendlines (which are now resistance levels), which means that last week’s technical breakdown was/is still intact.

Shortly after my statement, the market erased its gains in one of the worst intraday reversals in years:

bounce chart

The sell-off of the last few weeks caused the S&P 500 to break below its uptrend line that began in early-2016. The next major technical support and price target to watch is the 2,550 to 2,600 support zone that formed at the lows earlier this year. I don’t expect to see much of a bounce until this zone is tested a bit more (the market may need to test the lows of this zone around 2,550).

S&P 500 Chart

At the close of trading last week, the Dow Jones Industrial Average still had not broken below its key uptrend line yet, unlike the S&P 500, Nasdaq Composite, and Russell 2000. As of today, however, the Dow closed below this uptrend line, which is a worrisome sign. I would like to see a close below this line on the weekly chart for further confirmation.

Dow Chart

The Nasdaq Composite index continues to fall hard after closing below its uptrend line that began in early-2016 last week. The index will likely gun for its next price target, which is the 6,600 to 6,800 support zone that formed earlier this year. I don’t foresee much of a bounce until the Nasdaq has tested this zone.

Nasdaq Chart

The small cap Russell 2000 index broke below its uptrend line three weeks ago and has been testing the 1,475 support level. If the index breaks below the 1,425 to 1,475 support zone, it would give yet another bearish signal.

Russell 2000 Chart

I don’t expect much of a bounce until the respective U.S. stock indices test their early-2018 lows, which means that the markets are likely to go even lower in the short-term. Even if/when we get a bounce, it’s not much to get excited about because it is likely to only be a short-term technical bounce or relief rally rather than a sustainable phase of the bull market. I have been warning that we are in a dangerous stock market bubble (please watch my presentation to learn more), so the breakdown of the past few weeks means that the stock market bubble is in the process of popping – a very scary prospect.

Please review our Chief Investment Strategist Lance Roberts’ newsletter from this weekend to learn how we are positioning in this market.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more. 

The Market’s Trend Breakdown Has Been Confirmed

On Wednesday, after the Dow plunged 608.01 points, I wrote a piece called “The #MAGA Stock Market Trendline Is Broken” in which I showed how the U.S. stock market’s sharp decline caused several major stock indices to break below their important uptrend lines that have formed in early-2016. I described this breakdown as a “very important change of trend.” On Thursday, the Dow rose 399.95 points and the S&P 500 rose 49.46, but I said that the market bounce did not negate the bearish technical developments that took place on Wednesday. Sure enough, the Dow fell 296 points or 1.2% on Friday, while the S&P 500 fell 1.7%, which confirms the technical breakdown under the important trendline that formed in early-2016 (I was waiting for a solid close below this level on the weekly chart).

This week’s sell-off caused the S&P 500 to break below its uptrend line that began in early-2016. The next major technical support and price target to watch is the 2,550 to 2,600 support zone that formed at the lows earlier this year.

S&P 500 Chart

Unlike the S&P 500, the Dow Jones Industrial Average still has not broken below its key uptrend line. If the Dow closes below this uptrend line in a convincing manner on the weekly chart (possibly next week if the sell-off continues), the next important support level and price target to watch is the 23,250 to 23,500 zone that formed in early-2018.

Dow Chart

The Nasdaq Composite index closed below its uptrend line that began in early-2016. The index would need to close back above this trendline to negate the bearish technical signal. If the sell-off continues, the next price target to watch is the 6,600 to 6,800 support zone that formed earlier this year.

Nasdaq Chart

The small cap Russell 2000 index broke below its uptrend line two weeks ago and tested the 1,475 support level this week. If the index breaks below the 1,425 to 1,475 support zone, it would give yet another bearish signal.

Russell 2000 Chart

As someone who is warning about a dangerous stock market bubble (please watch my presentation to learn more), this week’s technical breakdown really concerns me. The U.S. stock indices discussed in this piece would need to close back above their trendlines to negate this week’s breakdown. There is a very good chance that the sell-off will continue until U.S. stock indices hit their support zones at the early-2018 lows, then they will bounce for a time, and attempt to break below their support zones. If and when the indices eventually close below their support zones, that would give yet another bearish signal that would likely foreshadow a decline to their 2015 highs (not that the bear market will stop there, but it’s the next step after a break below the early-2018 lows).

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more.

Here Are The Key Levels To Watch In U.S. Stocks

After a pause last week, volatility reared its ugly head again with the Dow falling as much as 548.62 points on Tuesday before recovering most of the losses by the close of trading. Though I am warning that stocks are currently experiencing a bubble that will end in tears (see my presentation about that), I believe in using technical or chart analysis to make sure that I am on the right side of the market’s trend in the shorter-term. In this piece, I will show the key levels in U.S. stock indices that I believe are important to watch.

During this week’s sell-off, the bellwether S&P 500 broke below its uptrend line that began in early-2016, which is a bearish sign if the index closes below this line by the end of this week. If it does, the next major technical support and price target to watch is the 2,550 to 2,600 support zone that formed at the lows earlier this year.

S&P 500 Chart

Unlike the S&P 500, the Dow Jones Industrial Average has not broken below its uptrend line that began in early-2016. If the Dow closes below this uptrend line in a convincing manner on the weekly chart, the next important support level and price target to watch is the 23,250 to 23,500 zone that formed in early-2018.

Dow chart

Like the Dow, the tech-oriented Nasdaq Composite index has not broken its uptrend line yet and actually bounced off this key level on Tuesday. If the Nasdaq eventually breaks below its uptrend line in a convincing manner, the next price target to watch is the 6,600 to 6,800 support zone that formed earlier this year.

Nasdaq chart

The small cap Russell 2000 index broke below its uptrend line two weeks ago, which is a concerning development. The next major support to watch is the 1,425 to 1,475 support zone that formed in late-2017 and early-2018.

Russell 2000 chart

Though the market sell-off of the past two weeks is definitely concerning, more confirmation is needed to determine if a more extensive correction or bear market is imminent. For more information, please read our Chief Investment Strategist Lance Roberts’ technical market update as well.

We at Clarity Financial LLC, a registered investment advisory firm, specialize in preserving and growing investor wealth in times like these. If you are concerned about your financial future, click here to ask me a question and find out more.

Pennant Patterns Are Forming Everywhere In The Markets

Since plunging two weeks ago, many financial markets have been treading water as market participants digest the recent developments and try to determine what comes next. From a technical analysis perspective, pennant patterns or flag patterns (both are considered to be continuation patterns) may be forming in a variety of different financial markets. These patterns often happen after a major move as traders take a pause to catch their breath. A strong breakout with high volume in the direction of the original trend is necessary to confirm the end of the pennant pattern and the resumption of the primary trend.

This chart shows a typical pennant pattern (via Investopedia.com): pennant

The bellwether S&P 500 may be forming a pennant pattern:

SP500

The Dow may also be:Dow
The tech-heavy Nasdaq 100 may also be:

Nasdaq

The 10 Year note price may also be forming a pennant pattern. Its decline (which corresponds with higher bond yields) has been contributing to the stock market’s bearish action lately. If the possible pennant pattern is confirmed to the downside, it would be another bearish omen for stocks (and vice versa). 10 Year Note

The VIX or Volatility Index (a fear gauge for the U.S. stock market) may also be forming a pennant pattern. If the VIX breaks out to the upside, it would give a bearish signal for stocks (and vice versa). VIX

It’s not just the U.S. markets – Japan’s Nikkei 225 may also be forming a pennant: Nikkei

Germany’s DAX stock market index too: DAX

And so is the European stock market index: Euro Stoxx 50

Please be aware that this commentary is not a prediction. These patterns need to be confirmed one way or another by a breakout with strong volume. If the stock indices break to the downside, it would be extremely concerning after the bearish action that occurred in early-October.