Midweek comments

Some interesting developments in my daily key reversal levels.

* Daily momentum (MoM) remains down for all major stock indexes, but if markets do not drop today then MoM will probably turn up for several markets. That would set us up for a rally.

* Gold broke above its daily key reversal level on Monday only to drop right back yesterday. That is usually a bad omen and means there is more downside action to come. Look for a test of the $1200 level this summer. And it probably implies that the Euro will start going down versus the US$. Gold will need a close above $1321.89 to turn the tide again.

Yesterday, the Nasdaq reversed course at our Bottom1 target of 3975. We may see another test of that level on the back of geopolitical tensions going into the weekend. But my technical indicators are showing first signs of turning up from rather depressed levels, and a bullish divergence is starting to shape up in my short term Earl indicator. So, the odds are increasing that we will get a significant rebound rally soon, probably next week. Some of my short term models are now also giving plenty buy signals for stocks in the beaten down biotech sector. A possible scenario for the Nasdaq is this one (click for larger image):

A rebound to the ~4200 level would paint the 2nd shoulder in a classic “head and shoulders” formation. Meanwhile the S&P500 can climb to marginally higher highs once again. We will examine this in my next weekend post.

Stay tuned,

Danny