Technical talk: Bias remains cautious

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The comments below were provided by Kevin Lane of Fusion IQ.

The market had its worst sell-off in a few sessions as the S&P 500 (as well as other key benchmark indices) rallied up into resistance zones and then turned down. The volume on the sell-off was much heavier than the volume on the advance and suggests the bear still has some bite left. Internals on the sell-off were decidedly in the favor of sellers. Thus the bias remains cautious and the path of least resistance remains down until a variety of resistance levels can be overtaken.

Below in our chart watch we look at several key indices from a technical perspective to paint a more detailed picture of the current “Message of the Markets”.

As seen above, the S&P 500 stalled at the convergence of resistance and a downtrend near 1,100 (red and orange line). Volume expanded on the sell-off after a light volume advance. Until we can break above 1,100 the path of least resistance is down.

As seen above, the Dow Jones Transportation Index (TRAN) reversed Friday at a down­trend line. Like the S&P 500, until this index can work out the downtrend the bias will be down.

As seen above, copper futures are in a triangular consolidation (red lines) and nearing the apex of the consolidation. Expect a resolution of the range very soon. A downside break would sug­gest the economy is softening, while an upside breakout would suggest the economy is still tracking up.

As seen above, the euro, which we covered near $1.20 due to a prescient call by Felix Zulauf as he suggest­ed that sentiment regarding the currency was too negative, has recently moved back above a downtrend line (red line) and is now approaching a resistance zone near $1.30 to $1.33. With other countries in the EU likely to come clean with bigger issues we expect the euro to fail at the aforementioned resistance area.

Investors continue to hide in corporate, investment grade bonds as U.S. companies have enormous stock­piles of cash and enough earning power to weather weakening economic activity, should it occur.

Source: Kevin Lane, Fusion IQ, July 19, 2010.

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