Brief Index Overview

Sep 6, 2007: 8:27 PM CST

Let’s take a quick look at the current position of the Major US Indexes:

The Dow Jones:

  • Dow just a hair above the 20 and 50 period EMA
  • Dow just a hair above two converging trendlines
  • Dow above a frequently tested ‘line’ that has served mostly as support
  • Position of the 20 and 50 period moving averages are ‘flat’ which signals neutrality
  • Unless there is a major standard deviation move down, the market has much more support than resistance

The Nasdaq:

  • Price is sitting at the upper trendline which has existed as support five times previously. Now resistance?
  • Price is at the upper limit of the Bollinger Band after a large move up
  • Price made a New Momentum High, but NOT a new price high. Divergence?
  • Price may have significant support from the 20 and 50 period moving averages.
  • The 20 period MA has turned up; so has the trendline (red line) at the bottom pane indicator

The S&P 500:

  • Price may have significant support below from all three major moving averages.
  • Price may be ‘triangulating’ from the convergence of two trendlines
  • Price is a hair above the flat 50 period EMA
  • Price is again above the 200 period SMA
  • We may have a new trendline being established below price, angling upwards
  • Price will need to break either the flat 1490 parallel or the new rising trendline – it can’t stay between forever

Let it also be stated that all major US indexes are STILL in a confirmed downtrend on the Daily Charts. Traders may be missing this if they’re not careful with their interpretation of trends.

Price has not made a higher high, and until it does, price REMAINS in a confirmed daily downtrend on all indexes. Be careful of this fact. This is not the time to leverage long positions to the hilt.

You can become more comfortable with any long positions when price makes a higher high and later changes into a confirmed uptrend.

Until then, we seem to be having consolidation on the daily charts. This will probably be the dominant technical picture until the Fed changes or leaves unchanged Interest Rates in their September 18th meeting.

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Comments
  • The Jobs Report threw the market into a tailspin, violating recently established support zones. That happens from time to time. Fundamentals sometimes overrule the technicals - there's no sure-fire answer.

    I should start a countdown timer to the Fed's announcement on the 18th. Could be fun to watch. Maybe the overall economy is weaker than expected? All eyes will especially be on that meeting now.
  • Glyn
    Hi Corey,
    OK - so that was fun! Now what? I think you had support at ~13200 which was broken but will we see a big bounce based on expectation Fed will cut by 50bp? I keep looking at the DJI chart but......???
  • Indeed. Sector Rotation Theory - along with Business Cycle Theory and Market Theory - can be useful in anticipating what the Big Money traders are anticipating, but even then, there's no sure-fire method to predict a recession. An official definition requires two consecutive quarters of negative GDP growth. By that time, the corresponding stock market will have fallen quite a bit before the average retail trader - or the news - will begin to posture accordingly with their market positions.

    The Fed is tasked with ensuring high employment and keeping inflation in check (typically around 2% per year). They are NOT tasked with bailing out failing markets, especially if inflation is rising. Their job sometimes clashes with what the stock market desires. We may see a collision at their next meeting.

    Interesting times, indeed!
  • Glyn
    I guess if it walks like a duck and quacks like a duck... Kudlow still can't see a recession!? History shows that you don't predict a recession you look back and notice you're in one. Already cries being sent out for more rate cuts - what ever happened to fair market? You know, I spend time listening to CNBC Europe and Asia but its only in America that the markets appear to expect the Fed body to take heed of what it requires - all other markets just get on with their job and let their 'Fed' remain independent.
  • Thanks, Aaron.

    A great principle is that "Markets alternate between expansion and contraction." It looks like we're going to a contraction period following the recent wild expansion period, and there's not a lot that can dislocate the market like the Fed can, and all eyes will be on that crucial meeting... and price will act accordingly.

    Should be fun.
  • Good technical analysis of the current markets. I agree with you, the technical picture is unlikely to change until September 18th, when stocks will likely make a large move in one way or another.
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