Dow Appears to be Forming a Triple-Top

by Sam Collins | August 15, 2012 2:44 am

A better retail sales number led to a higher opening on Tuesday. And stronger-than-expected earnings from Home Depot (NYSE:HD[1]) added to the optimism. But the market didn’t sustain the higher prices, as Europe’s woes put a halt to the early rally and stocks sagged from noon to the closing bell.

At Tuesday close, the Dow Jones Industrial Average was up 3 points to 13,172, the S&P 500 was even at 1,404, and the Nasdaq fell 6 points to 3,017. The NYSE traded 565 million shares and the Nasdaq crossed 382 million. On the Big Board, breadth was only slightly negative, but on the Nasdaq, decliners were ahead of advancers by 1.7-to-1.

Dow Chart
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Trade of the Day Chart Key

Like yesterday’s chart of the S&P 500[2], the Dow industrials appear to be forming a triple-top. Seven trading days have topped at just over 13,200, while volume and breadth continue to shrink. On Tuesday, the stochastic issued a short-term sell signal, which could break the Dow to its 20-day moving average and a temporary bottom at 13,000.

DJT Chart
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And while the industrials struggle with a triple-top, the Dow Jones Transportation Average continues its sideways, non-confirmation mode.

VIX Chart
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The CBOE Volatility Index (VIX) popped from its March low on Tuesday, and its stochastic flashed a positive signal — a negative for stocks. It’s a bit early to make decisions based on just one reversal of the VIX, but if a pattern of reversals from under 14 develops for a week or more, the indication would be bearish.

Conclusion: Some technicians say that you should never sell into a boring market. If that’s true, then what or who will kick the bull out of its slumber?

Perhaps the Europeans are working on a plan to bring together a viable financial union. If so, the triple-top will break to the upside.

But I think I’ll continue to wait for a resolution to the crisis and not bet my 401(k) on a strong political/financial relationship between the north and south of the European continent. There have been too many cans kicked down the road from Berlin to Rome, and it appears that there is an unlimited supply of them.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

  1. HD:
  2. yesterday’s chart of the S&P 500:
  3. click here:
  4. click here:

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