Interesting Pattern

S&P mini futures - Looks like an inverse H&S pattern taking shape within a downsloping broadening channel.

Technical Picture - Rally Stalls at Bearish Gap Resistance

A weak open to start the week, but by midday, the markets were able to find support in the middle of Friday's range and eventually worked their way back up to range tops. The SPY just edged above Friday's range and ran into bearish gap resistance dating back to mid May.

As we can see from the 1 min. timeframe below, price almost tagged $115, and backed off, followed by a lower high, then price breached the afternoon trendline and sold off sharply. Notice the loss of momentum as the price bars stopped printing red for the last two higher highs. Negative divergence of RSI to higher prices foreshadows a reversal.

What's next? Well, we have bullish gap support from Friday's gap open. If that fails, we have partial gap fill support and a full gap fill as mapped out on the chart below.

GOOG carved out a bearish shooting star and needs to retrace and retest.

BIDU is extended, but could go higher as momentum is still strong.

AAPL satlling after breaching upper channel.

AMZN could be stalling just above upper channel.

CRM could be forming a bearish diamond top.

CAT still has room to move higher, possibly to $85 before reaching upper channel line.

Technical Picture - Diverging Markets

Futures sold off overnight on disappointing data out of Europe. Initial claims weren't good enough to turn things around so we gapped down on the open. Tech buyers immediately stepped in, but the broader markets needed a bit of a nudge in the form of better than expected existing home sales and leading indicators.

As you can see from the 15 minute charts of the Q's and SPY below, we have diverging markets. Tech is still holding support above the 5 day MA and the SPY barely tasted it on the gap fill. The Q's took out the PDH and tested Tuesday's post FOMC highs, but the SPY just managed to fill the gap, edging into the lower range of yesterday's action.

The two markets don't have to trade in lock step, but at some point, they have to confirm each other. This is an intraday tell and non confirmation leads to reversals in the price action. So, it was no surprise when the markets swooned into the close.

One of the reasons we've diverged so much is quarter-end window dressing. Institutions are busy loading up on sexy tech names like BIDU, AMZN and AAPL to make it look like they got it right, and at the same time, they're unloading the weaker sector names like GS.

After three consecutive lower closes, I would expect some stabilization in the S&P. Hopefully, we can manage to hold the 200 SMA on a closing basis.

GS has broken through several support areas and we have two bearish gaps to deal with. If it can't stabilize here, watch out below.

Trade of the day - AAPL - Break of ORH after NRIB. Place fibs over previous day's range to set Fib. targets. AAPL is trading blue sky (all time highs) so it can run. When the Q's tested Tuesday's high, it was time to fold.

GOOG is flagging nicely.

Technical Picture - Market Retests the Base

The S&P rallied back up to the baseline (highs of the left shoulder) and price was firmly rejected, resulting in a fast move down to the trendline. Price tested the support of the breakout point twice with no traction. We closed below the trendline on the cusp of the 5 day MA. If price fails to hold support tomorrow, the SPY could easily break lower - next supports at $112.00, followed by the gap fill at $111.50 as depicted on the chart below.

Over the past two sessions several leading stocks succumbed to profit taking - CRM, AKAM, NTAP APKT to name a few. When leading stocks slip, it usually means the market is tired and needs to rest.

Tomorrow's economic data should help set direction.

The Euro has broken out of a cup & handle pattern. The $USD continues lower.

Semis started to slip just shy of their 200 SMA.

Several important sectors have yet to breakout of their multi-month bases, including transports and financials. Financials are of particular concern as we can't seem to hold above the 200 SMA.

Trade of the day - AKAM - Over a two day period, price made multiple attempts to break resistance but failed. Yesterday, we closed on the trendline and 5 day MA (orange MA). Price breached the trendline and lost the 5 day MA in opening trade and fell through to second level support.

Technical Picture - Markets Mixed

Lackluster trade until the FOMC statement was released at 2:15. As expected rates are unchanged and, current economic conditions dictate exceptionally low rates for an extended period. FED is also prepared to provide additional accommodation if required. How did the market react? Stocks, gold, and treasuries rose and the dollar sank. All but stocks managed to hold those moves into the close.

TLT has regained its broken trendline, UUP looks really ugly, GLD notched new closing high and the S&P looks somewhat bearish intraday, but it has a lot of support from the BO base. If it forms a right shoulder intraday, the technical picture will become clearer.

Doji flags are bearish. GS rips to resistance zone, carves out a doji flag on the 15 min. timeframe above, and sets up a reversal. Short as depicted on the lower timeframe below.

Post FOMC, short the trendline break.

Gold rips post FOMC. Using ABX as a proxy for gold, wait for retracement of initial spike, and go long.

Dividend Investing in an Uncertain Economic Climate

Guest Post by Vincenzo Desroches

The economic recovery in the United States is hitting a major wall of resistance. In early 2010, the recovery seemed to be doing quite well. Unemployment was falling, retail sales were increasing, and economic growth as measured by GDP was expanding. It all seemed so rosy.

But when the European Debt Crisis fully erupted in the spring, the global economic recovery began to show signs of faltering. Then in June and July, key economic data out of the United States disappointed to the downside quite strongly. By mid-June it became very clear the U.S. recovery was in trouble, and in late July Federal Reserve Chairman Ben Bernanke basically sealed the deal and removed all doubt from the market when he stated before Congress that the economic outlook for the United States in the 2^nd half of 2010 is “unusually uncertain.” It was official—the Federal Reserve had no clue how bad things were going to get.

Then, the Federal Reserve resumed talks of possible further quantitative easing measures, and they downgraded U.S. growth prospects substantially. Growth prospects for the 2^nd half of 2010 are now expected to be under 2%. That low of a growth rate makes it basically impossible to reduce unemployment. The best scenario for the United States is that we will enter into a multi-year period of very sluggish growth. Unfortunately, that seems to be the best case scenario. It seems very possible that the United States could slip back into recession in the coming 12 months. Although this scenario is not likely at the moment, it is possible. The most probable picture is an extended period of slow growth, but a complete melt-down and recession is definitely possible.

Therefore, in these extremely uncertain economic conditions, many investors are puzzled as to how or if they should partake in dividend investing. In 2008 and 2009, dividend investing took a huge hit. During Q4 of 2008, 288 companies cut dividend payouts and in 2009 another 804 companies cut dividend payouts. The estimated cost to investors was $58 billion. The reason companies cut dividends was simple—they needed cash. During a recession, credit markets tend to tighten significantly and companies do not want to risk an inability to access cash. Thus, they cut the dividend payout in order to bolster cash reserves.

Mr. Bernanke testified in July that the state of credit markets was less than optimal for business expansion and he addressed the fact that companies are still having a very hard time accessing the credit they need to expand and conduct business. This concern may be exacerbated by the current economic slow-down, and credit markets could be headed for even tighter conditions though the 2^nd half of 2010 and into 2011. This fear of tight credit markets may cause more companies to cut dividends in the coming year.

Consequently, in an uncertain economic environment such as this, how does an investor approach dividend investing? First of all, investors should be cautious of chasing high yields. Instead, during times of economic uncertainty, it may be better to stick with companies that are in line with the broader market average of 2-4%. Second of all, focus on cash. Cash is king during times of recession and slow growth, so make sure the company has a healthy cashflow. And finally, make sure you diversify across the broader market by investing companies in all major sectors. You may want to consider limiting your exposure to the financials as they may face a very difficult year. Diversification will help ensure that you are at least partially exposed to the sectors that do show strong growth over the next year. foreign exchange trading is another way to diversify outside of equities that could help hedge against poor stock market performance. Using a forex demo account is a good way to get started.

Technical Picture - Markets Breakout of Range

The markets gapped up slightly on the open, followed by a brief period of backing and filling. Once that was done, prices advanced through a broad based rally, cruising past last week's highs. Orderly consolidation midday, before the next leg up.

Markets are quite extended in the wake of the run off of August lows, and the NDX which has been leading the advance is approaching resistance -April topping congestion zone.

Map out support/resistance levels as well as trendlines.

Housing data in pre-market and FOMC at 2:15 EST.

SPY- Last week's broken trendline was resolved through time as opposed to price - sideways chop. Today, we established new recovery highs and therefore we have to draw in a new trendline as depicted below.

BIDU carved out a bullish flag chart pattern intraday. Full extension was reached as well as a new all time high.