Stock Market Technicals: Bearish Engulfing Pattern Is Cause For Concern ~ market folly

Wednesday, June 30, 2010

Stock Market Technicals: Bearish Engulfing Pattern Is Cause For Concern

It's been a while since we last took a look at the market's technical picture so today we're highlighting MarketClub's latest market analysis video. In it, they highlight a signal that has typically preceded strong market declines. They're currently cautious on the stock market and derive this stance from two signals: a bearish candlestick pattern that just emerged as well as a strong level of support that's about to be broken. You can see their latest analysis in the video.

Let's first focus on the negative candlestick pattern they've identified. MarketClub pulls up a weekly chart of the Nasdaq and notes a negative/bearish engulfing line, a pattern whereby the previous bar is completely eclipsed to the downside. This marks a temporary top around the 2,350 level in the Nasdaq. This is important because they point out this same pattern signaled a sell-off in early May. If that's not enough to elicit concern, they point out another previous time where this pattern preceded a decline. Back on October 15th, 2007, a bearish engulfing line marked the beginning of what would be a massive downtrend during the financial crisis.

Turning next to support levels, MarketClub identifies 2,200 on the Nasdaq as a key place to keep an eye on. If it closes below that on a weekly level, the market is most likely headed lower. Throughout May and June, this level has been tested to the downside numerous times and looks like it is on the verge of breaking. Lastly, they highlight that their proprietary trade triangle indicators are signaling a negative trend, thus suggesting a cautionary stance on the markets. You can view their stock market technical analysis by clicking the video below:

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