Sellers attack as moving averages come to the rescue
The real selling was yesterday but there was sufficient demand to keep things flat for today. Hardest hit was the Dow Jones Industrial Average as it pushed below the 50-day MA and back into December's congestion. Technicals are net bearish, which adds to the selling pressure in the index. 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.
The Nasdaq 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. So, the net damage of the day was neglible, but it won't like it if other indices continue to decline.
The S&P did not suffer as much as the Dow Jones index and has been relatively low key in its actions over winter. There are a couple of red flags aside from the continued loss in relative performance to the Russell 2000; volume climbed to register as distribution, and technicals have started to turn bearish. The index has also been turned for a second time its 200-day MA - although repeated tests of a given resistance has a greater probability of a break through.
The Russell 2000 has the most support to lean on, but it too registered two consecutive days of distribution and was rebuffed by resistance of November highs. If there is a positive it's that technicals are mostly bullish.
For the next trading session we will want to see how much of a pause today's action meant. The current rally was a belated Santa one, but that is now under risk. We will want to see moving averages defended, because if these fail we will be looking at retests of October lows.
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