Securities Research Services

Sunday, June 10, 2007

Lower High Watch Begins

Market corrections tend to play out in phases, frustrating buyers as they drip lower. Last week started out as a waterfall decline, but buyers stepped back in on Friday. This may be the start of the drip lower that will frustrate dip buyers who have been up until now successfully buying dips.

Technical damage was done last week and major indices have seen significant distribution take place. Because of this we will be watching for a lower high to develop this week, which will provide a second chance shorting opportunity.

The XLU, Utilities Spider, offers us a potential road map for the broader market. Note the original slide, similar to that which occurred last week in the broader market, followed by a lower high, which led to a larger sell off last week.

This week we will be watching to see if the broader market follows this XLU pattern. If so, the QQQQ should find resistance at $47.30 and the SPY should find resistance at roughly $152.50. A failure to create a lower high would negate this hypothesis.

No comments: