50-Day MAs tagged - now let's see what happens...
I've been looking for these tests of 50-day MAs since the reversals off 200-day MAs. These tests have coincided with moves into 50% Fibonacci levels which increase the possibility of support kicking in. While the tests of welcome, the 'how' of these tests is less so. Ideally, I would like to have seen more bullish candlesticks, but this was not the case.
The Nasdaq had a standard bearish sell off on confirmed distribution, with the added trouble of a return of net bearish technicals. If I had a preference, it would be for a 'bullish' hammer with a close above today's close.
The S&P had a similar finish as the Nasdaq, but Slow Stochastics [39,1] haven't yet managed a bearish cross below the mid-line which would mark a cyclical bear market. A measured move lower from August highs brings it to its 50-day MA and today's close has already undercut it.
The Russell 2000 ($IWM) has not escaped the selling of its peer indices but has not done enough to fully test its 50-day MA. The index still maintains the relative outperformance to the Nasdaq and S&P, although today's selling did rank as distribution. Unlike the aforementioned indices, it could take another days of selling without breaking below its 50-day MA - and therefore, is the preferred index for bulls.
With the moves down to the 50-day MA effectively complete we now have to consider whether these tests can be considered successful support tests or just a pause in a larger move lower. Tomorrow will give some inclination on this. Ideally, I would like to see a bullish reversal candlestick, be it a 'doji' or 'hammer', with a long spike low and a close above the 50-day MA of the indices. Whether markets will deliver on this is another. Bulls will still have another chance at the 61.8% retracement, but converged support is harder to find at these levels.
You've now read my opinion, next read Douglas' blog.
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