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The Dow, Nasdaq 100, and SP 500 all broke their April 2012 highs today. However, after a gap up opening, the market closed lower and formed a bearish engulfing pattern on the daily chart shown above. There is an intra-wave divergence on the momentum study and an overbought RSI. All in all, it looks likely for the market to pullback from here even if it were to eventually move higher. Since today is Tuesday, this weekend's CoT report will include "smart money" response to today's attempted breakout. If they increased selling, then it would be further support to the idea that the market is topping here. The May 2008 high was NOT exceeded, which I would like to see before a major reversal. That would just be an added stop running point which is very typical at major reversal points.
I like to trade major reversals because the risk/reward ratios are so good. But the moving average trend is up and the daily ADX is pointing up and almost at 20 now which indicates a near stable trend developing. So the trend strength is objectively still UP. If long, I suggest a trailing stop method in case of a broad spread reversal.
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The weekly chart shows a strong MACD bearish divergence currently on this breakout. However, another couple weeks of upward prices would put the MACD at or near new highs. So if the breakout fails, the technical set-up is ideal for it to do so right now, not after more upside.
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The hourly chart shows a continuing massive bearish divergence on the MACD suggestive of a downside resolution. When the daily trend gets tight, the MACD may take a similar appearance on the hourly chart, so that is one explanation of the divergence, but at this point I still interpret this as a powerful divergence rather than tight coils within a stable larger uptrend.
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Additionally AAPL formed a high volume dark cloud cover candlestick with overbought RSI. It hit a new high this week after finally breaking out of its recent base. This is a bearish candlestick so it could lead to some weakness ahead. What I think is more telling is that the weekly MACD is now in a massive bearish divergence on this break to new highs in AAPL. This has the "look" of the type of MACD signal at major tops. So be wary of a base failure here in AAPL if in investment longs. The breakout point of the cup with handle was about 620. A weekly close below that level would be very negative for the price outlook on AAPL.
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