The Indexes Remind Me of Diane C.

• Posted by Greg Harmon
• on August 7th, 2013

You may not know it but you cannot deny it. The Stock market indexes are the consummate flirts. Like the pretty girl in high school (Diane C.) they flirt with you and make you think they like you, only to turn the other way when someone else they have been toying with blindsides you with a left hook. How do I know? Take a look. The charts below of the Dow Transports ($DJT, $IYT) and Industrials ($DJIA, $DIA) are a good place to start. They confirmed a new uptrend in Dow Theory by making new highs, only to complete bearish Shark Patterns. The longs have been sucked in and now the shorts are watering at the mouth for an impending reversal. Who can blame them. The targets on the Harmonics are near

Industrials ($DJIA, $DIA)

Dow Transports ($DJT, $IYT)

the 50 day Simple Moving Average (SMA), quite a bit lower. But these do not always play out. Shift your attention to the S&P 500 ($SPX, $SPY) below. This is also completing a bearish Shark with a target lower near the 50 day SMA. But another interpretation is that it is consolidating in a loose bull flag in the blue box. The break of the box higher targets 1820. This chart may be the best to illustrate the dilemma. A Shark with a target 45 points lower or a bull flag continuation with a

S&P 500 ($SPX, $SPY)

target 120 points higher. You think this is easy? All to the downside. Well look at the Russell 2000 ($RUT, $IWM) which has been leading this market. This was also pursuing a bearish Shark, but forgot to stop at the Potential Reversal Zone (PRZ). It is only building that bull flag. Rounding out the field, the Nasdaq 100 ($NDX, $QQQ) , completed its bearish

Russell 2000 ($RUT, $IWM)

Shark, and started to retrace, but fell short of the target near the 50 day SMA before moving back higher. Sharks, bull flags, failures both ways. What does this all mean? I told subscribers last week in the Monthly Review that all looks better to the upside. Perhaps the day to day noise is causing the confusion intentionally like that high school beauty queen. If

Nasdaq 100 ($NDX, $QQQ)

every index looks better to the upside in a longer timeframe, maybe a little overbought, perhaps there is just a rotation game going on. Flirt with one set of investors and then another until all are confused and baffled. Nice work future prom queen.

Although I dated Diane C. it did not last and did not end in bloodshed. Thankfully the events did not dissuade me from flirting with the markets later in life.

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