Best Financial Markets Analysis Article On Tuesday morning at this time, the emini S&P 500 was around 30 points higher than where it is now, which placed the index above the 200 and 20 DMA's, a much stronger technical position. Now we notice that the e-SPU is attempting to tread water below all of its relevant trending moving averages -- the 20, 50 and 200 -- and the decline could be the formation of the "right shoulder" of a substantial 9-month head and shoulders top (see colored rectangles on the enclosed chart).

If the e-SPU continues to weaken and violates multi-month support at 1037/32, then the significant downside potential of the top pattern will be triggered. That said, such an obvious topping pattern usually requires a few knee-jerk, whipsaw headfakes in the opposite direction to confuse the most investors and to make sure that when the top pattern finally breaks down it will actually seem like a complete surprise.

If such a scenario is approaching, then we should expect possibly a couple of violent rallies that get everyone "twisted" into a positive frame of mind. From my technical perspective, the e-SPU needs to hold above 1070 to avert more immediate downside damage and to trigger near-term buying interest that can pop the index to 1100 or higher in the upcoming days.

Without a doubt, the index is at a crossroads. We might know in a matter of hours if the "right shoulder" construction will be a "simple affair," as in straight down from current levels, or of a more complex nature that includes a couple of vicious short-covering rallies back towards the "yuan high." Right now, my near-term work is telling me to expect the latter, but to be prepared for the former.

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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