Treat the equities markets with great caution now - resistance here can signal test of the March lows

Folks, please treat the equities markets with great caution at this point. With the single exception of the Dow Jones Industrial Average which did a quick intraday poke higher recently, none of the major indices we track has exceeded its high of early May. My Fibonacci work presented here in posts at that time showed that the indices tested important levels that can serve as resistance - including a 1.382 extension for NDX, and the .786 retraces for the Dow (INDU) and Dow Transports. The indices look like they may be churning at or under 200-day moving average resistance. There are some cycles reasons to think that this time window of late May and early June may be an important one, which could mean a potential reversal time. In addition, my own little Fibonacci calculation of March 7 that showed that low to occur at the 1.382 year interval after the October 2007 highs, also showed that this time frame is the 1.618 year interval after that market peak. With the exception of the Nasdaq (which hasn't bettered that 1.382 Fibonacci level I described, that can be an Elliott Wave flat), the major indices have not bettered their January highs.

With other market "tells" like key levels being tested in oil, euro and the dollar, this is not a time to be complacent. Many are looking for the markets to simply pull back such as to the 50-day moving average, and form the right shoulder of a bullish reverse head and shoulders pattern pointing toward another, higher rally leg up. I don't disagree that may happen. But there are also more bearish scenarios that can have the S&P 500 testing the March lows and even lower such as to 600 or 578, even as soon as later this summer or into September (which is a 1.382 time extension based on the range from the 2002 lows to the 2007 highs). Again interestingly, we're getting somewhat close to 89/90 days from the March lows; and then another 89/90 days points to September - for those who like keeping track of numbers like 89/90 (as 4 times 90 yields a "circle" of 360). The point is, a potential re-test of the March lows down under 700. Bearish possibilities like that are nothing to be complacent about.

On technical indicators, notice that the On Balance Volume on the daily SPX chart (below) has fallen under its 30-day moving average. The combination of that, and a declining SlowStochastic on that special setting (just under the MACD indicator (which has also crossed under, by the way), normally points to a swift movement which in this case would be down.

Not saying that new lows are guaranteed ... just pointing out that another rally leg higher, before the March lows are tested, certainly isn't guaranteed either. The bearish possibility of testing 600 or 578 in the SPX is based on my hypothetical of a large Elliott Wave flat on the monthly/yearly charts, and so far the market has not done anything to rule that out.

Update notes at 12:54 pm - Andy Askey has done another fine job with posts at his PTV-Investing Blog: Churning Working Off Overbalance Of Price (5/28/09), and Commodity Charts Show Weak Bounce After Capitulation (5/29/09). I'm not surprised Andy beat me to noticing that we're getting into the 89/90 day time frame. (Not only is 90 one quarter of a circle (and I'm sure that means it relates to phi), but 89 is related to Fibonacci analysis.) Andy's comments about which way this breaks out, seems to go with mine - he may be rather expecting to the upside, while I'm more dour, but trying to remain Unbiased of course!
Also - thanks Andy for your comments about my blogspot - very much appreciated. And I heartily recommend to my readers that they regularly keep up with your analyses at your PTV-Investing Blog as well!