Stock Markets Analysis & Opinion

Bears Attack U.S. Indexes but Moving Averages Come to the Rescue

 

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After a positive start to the year, U.S. indexes suddenly found themselves under a heavy bear attack this week. Yesterday, the hardest hit was the Dow Jones Industrial Average as it fell below the 50-day MA and into December’s congestion.

Technicals are net bearish, adding to the index’s selling pressure. I would be looking for a test of the 200-day MA this week — a moving average currently running along horizontal support of the September swing high and the December swing low. 

INDU Daily Chart

The Nasdaq 100 finished on its 50-day MA and is still holding to bullish net technicals. The index continues to gain relative strength over the S&P 500. So, the net damage was negligible, but it isn’t favorable if other indexes continue to decline.

COMPQ Daily Chart

The S&P did not suffer as much as the Dow Jones index and has been relatively low-key in its actions over winter. Aside from the continued loss in relative performance to the Russell 2000, there are a couple of red flags.

The volume climbed to register as distribution, and technicals have become bearish. The index has also been turned for a second time its 200-day MA — although repeated tests of a given resistance have a greater probability of a breakthrough.

SPX Daily Chart

The Russell 2000 has a support to lean on, but it registered two consecutive days of distribution and was rebuffed by the resistance of November highs. The technicals are primarily bullish, which is positive.

IWM Daily Chart

We will have to wait and see how much today’s pause meant for the next trading session. The current rally was a belated Santa one, but it is now under risk. We want to see moving averages defended because if these fail, we will look at retests of October lows.

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