Google and Netflix have now pulled back to their respective rising 20-day moving averages. Sell volume has not been too bad. But now comes the big test, either way. Buyers should present themselves around current levels to support these two leading stocks. If it turns out that the pullback is too pretty or obvious, then we could see a trap door lower to start the holiday-shortened week.

Because they have been leading stocks in the market, it is worth watching to see in which direction they break.

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Metamorphosis of Narcissus (1937):  Oil-on-canvas painting by the Spanish surrealist Salvador Dalí.

Here is a quick update to my market look this morning.

SPY appears to now be morphing into a descending triangle on the 30-minute chart, below. Bears will argue this is a clear bear pennant/flag still intact, while bulls are pushing the double-bottom thesis dating back to Wednesday.

I suspect we will not have resolution until at least Tuesday.

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We are seeing some poor action in the emerging markets this week, with the EEM ETF giving up the progress it had made earlier this month. One component of the potential rotation into the global material/energy/industrial sectors is indeed seeing improvement in the emerging markets, given how closely tied those sectors are to the likes of Brazil, Russia, India, and China.

First, consider the weekly chart of the emerging markets ETF. Note how it appeared bulls were on the cusp of an imminent breakout. But then price gave it up and is starting to roll back over on heavy sell volume. Even if this does not mean a major bull trap at hand before we crater, it does indeed scream “more time!” to consolidate before the next attempt is made.

The second chart zooms in towards the daily timeframe, where the breakout attempt from the falling channel and subsequent rollover is all the more pronounced.

These are now emerging problems to watch after Memorial Day.

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Let us read the “tea leaves,” as the folks on television would say.

The 30-minute chart of the SPY, ETF for the S&P 500 Index, below, reveals are few interesting technical developments.

First, the “bear flag” we discussed yesterday (light blue lines) actually did begin to resolve lower (on this timeframe only!) in the form of a gap down this morning. However, bulls will claim a “double-bottom” with the lows of Wednesday’s holding true as we speak.

So pick your bias, as there is competing evidence for the bulls and bear case alike. That said, consider how many short-term stop-losses are now under this morning’s lows, roughly 1635/6 on the S&P, and the waterfall effect a breach of it would have. On the upside, a breach of 1655 again throws a wrench in the bear hope, in all likelihood, of an imminent deeper correction.

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