(By Rich Bieglmeier) Yesterday, we warned that the NASDAQ was giving off signs of weakness, that a possible bearish MACD cross-under was emerging, and Wall Street gave us both on Tuesday. Selling accelerated after Charles Plosser, president of the Fed's Philadelphia branch, told an audience that QE3 probably won't help the central bank meet its goals.
iStock isn't sure why the street would take the indexes down on the news. His comments seem to be a setup for QE4, 5, 6…Perhaps, Plosser just added too much weight to the emerging theme of, hey wait a minute, the economy sucks, and it is going to get worse.
As we mentioned, many times already, FedEx (FDX) started the "oh, no" bandwagon and Intel (INTC), and Caterpillar (CAT) recently hopped onboard. The Philly Fed guy just tipped the scales too far for bears to ignore.
The red tape buried the NASDAQ below its 12-day average and has the index hovering above the 26-day average. If it heads down another 15-20 points, the 50-day benchmark of 3,041 could be the rebound zone. The S&P joined the NASDAQ in MACD hot water, bearishly crossing on Tuesday and falling through its dozen-day trend-line, too. Shave off another six points on the Dow, and it's three-for-three with unwelcomed MACD sell signals – there is that confirmation, again.
Don't get too hyped-up, it's important to remember that the current correction is just a minor ripple in an otherwise powerful wave higher. The trend remains the bulls' friend.
Before anybody can call a "top" or reversal in the trend, iStock wants to see a particular pattern take shape. First, the indexes will have to set a pivot low and rally higher. The rally CANNOT surpass the previous, immediate pivot top. The next sell-off will have to fall below wherever this sell-off ends. To finish up, the next up streak sets a lower high than the upcoming bounce back.
Being patient and "following the rules" will never put any market watcher at the font of the "calling the top" line. Instead, it means putting the odds well into your favor and allow investors to participate in a majority of the move, up or down.
Normally, this is where iStock trots out a few trading ideas, but with the knife falling, we will wait for it to stick in the cutting board before jumping back into short-term trades.
We will be back tomorrow with our take on Thursday's Durable Goods Orders announcement. Hint – we aren't expecting too much.