Another Atomic Wedgie?

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Despite the offensive complacency of the bulls back in mid-February when we hit 52-week highs, the bearish rising wedge held true. Indeed, the market retraced the entire rising wedge pattern, and then some, during the 7% correction earlier this month. After this most recent rally, the market now looks to be nearing resolution of yet another rising wedge.

Before you go shorting like it’s going out of style, though, consider the tendency of alternation in technical analysis, where two identical patterns are less likely to resolve similarly when seen within such close proximity on the chart. Thus, anticipating a breakdown appears to be a lower probability bet here than it was last month. Beyond that, we still have that key 1300 level representing support once again on the S&P 500.

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The ETFs for both the small caps and consumer discretionary stocks are playing “just the tip,” with small volume. In other words, the breakouts they saw late last week will be under intense scrutiny on Monday, especially since the moves represented only a marginal breach of resistance and were on tepid volume relative to the prior sell-offs. Both of those areas of the market, small caps and consumer discretionary, should be pretty good indicators of risk appetite.

In sum, the bulls performed admirably last week and once again made fools out of aggressive bears, but I am far from giving the all-clear signal until we see these moves hold.

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[youtube:http://www.youtube.com/watch?v=wTqsV3q7rRU 550 412] ______________

The financials have assumed their familiar role of being the laggards everyone loves to hate. Looking at the daily chart of the XLF, ETF for the financials, it is easy to see why. After showing some signs of life from late 2010 through mid-February of this year, the financials have blended sideways-to-down action ever since.

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Moreover, many bears are hanging theirs hat on the chart of Goldman Sachs, which has been a notable laggard since the middle of January.

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At the same time, the broader bullish case is still intact. J.P Morgan is still working on a weekly cup and handle, as is the weekly chart of the XLF, seen below. Hence, pick your bias with regard to the financials, but do not disregard the fact that the weekly bullish setup is still clearly in play.

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Direct Link Click Here

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The chart of the Invisalign system maker has me intrigued here as a long idea. Note the initial break from the short-term descending trendline. Ultimately, ALGN will need to negotiate the $22 level for a major breakout, though.

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