3 Charts You Need to See

If you look at lots of price charts, on indexes and single stocks, in many different time frames, you may not need any help from anyone else figuring out where to position your troops (trading dollars).

But I like to see what other chartists are up to. I learn new things and, more importantly, I force myself to reevaluate my positions and biases.

I have three charts I want to share that may help you see things better or differently. My bias? I am currently bearish on the market for both fundamental and technical reasons that I discuss frequently in this column and in my trading service.

The first chart is of the S&P 500 Equal Weight Index. This reformulation was designed by Standard & Poors seven years ago to remove some of the distortion of mega-caps on the price of the index.

The SPXEW has a decidedly much more bearish look to it than the conventional market-cap weighted index. Note the dip below the 200-day moving average on July 12 and the 50-day steaming down, threatening to form a "death cross."

Next up is a very bullish view of the market. Seems the Elliot Wave contingent (they're the in the wing of the asylum next to the lunar cycle folks) has a very bullish wave count this summer. Many of them are calling for new highs this year above S&P 1,420 and charging toward 1,500.

And this is not a year-end "forecast" like every Wall Street house has based on a cheap market currently trading at 13X EPS estimates of $103. They think this surge happens in July and August!

This chart is from a gentleman who calls himself Mr. Mojo. I know. How much credibility do you afford to someone making market calls whom you cannot identify? Well you can find him at Trade With Mojo and he even offers his phone number if you want to chat. I'm guessing he has a subscription service to sell.

But the best reason to go to his site is to see that a technical analyst from Citi (also an E-Waver, so go figure) has just published a very similar call to his own and he shares it in detail. Mojo calls himself a pro trader and I have no doubt after watching many of his calls and analysis unfold accurately over the past few months.

So, is the Thursday reversal-Friday surge confirmation of his forecast? Not quite yet, but it is a good start. Just when bears were piling on to the break of support at S&P 1,330 and the 50-day moving average, here we are above 1,355 again.

I think there is something very noteworthy in this reversal off of support and big rally. I've said for 2 weeks since the post-EU summit pop that the bulls remain in charge above 1,330. And so they have staked their claim and run with it.

But, my last chart describes what's going on and what's possible. I've been showing this one to my Tactical Trader subscribers for the same two weeks as we try to define support, resistance, and potential breakouts.

What's going on is that the market is still consolidating since the April highs. And it is a bearish consolidation in my view. Whether you call this pattern a bear flag or a rising wedge makes no difference to me. I have drawn rough trend lines to highlight the pattern.

I say "rough" because I am not really a big fan of hard trend lines. Ten chartists will draw ten different straight lines across highs and lows according to their definitions of support and resistance.

So I am flexible with those lines and just try to get a rough idea of what is occurring. It's the pattern when you zoom out than counts, not the precision of the lines when you zoom in.

What's possible? A run to the upper bounds of the channel resistance at S&P 1,390.

Conclusion: Fundamentally, the stock market is at risk in the near term. If $103 EPS is priced-in for this year and $108 for next year, the market looks cheap because we are in a time of multiple compression as the global economy and the US recovery get weaker.

As more earnings and guidance continue to disappoint, the charts are some of our best guides as to what happens next. Now, all you have to decide is which of the above views matter more to you.

Happy trading!

Kevin Cook is a Senior Stock Strategist with Zacks.com