Market Breaches Monthly Support Levels on All Indexes

Jan 16, 2008: 10:07 AM CST

An incredibly bearish omen is setting up currently in the monthly charts of the US Stock Market Indexes.

Each index has now carved an intra-month breach of its rising 20 period (month) moving average, which has served as key support and key resistance many times prior.

Until a close is registered beneath this average, meaning until the month of January ends, a true signal cannot be given, but it would appear that odds are increasing for a true close beneath this key zone soon.

The white dots represent areas where the 20 period monthly average has been tested and held as support or resistance.

The Red dots (two of them) indicate areas where the 20 period MA was breached on a close, representing a potential trend reversal zone.

Should the S&P 500 close beneath its 20 month moving average, along with the other indexes which show similar patterns (except for the NASDAQ, which shows a massive decline from 2000, but is still breaking beneath its 20 month moving average), odds would then significantly increase for a new downtrend to develop potentially which would spell trouble for most long-term investors.

On a different note, notice the momentum divergence that the S&P formed, in terms of momentum oscillator peaks and price peaks.

In 1999, the black line momentum oscillator showed readings close to 100, while the new price highs of 2007 show the oscillator reading near 75. Momentum divergences can also appear on longer-term charts as well, and have similar forecasting potential.

The most recent all-time price highs were made on lower momentum readings (shallower price swings) than in 2000.

Anyway, the last break of the 20 period average gave us a test of the rising 50 period average, and in this case that would project the price of the S&P 500 index to about 1,300.

On the Dow Jones Index, we see similar patterns and a similar momentum divergence, though the recent all-time price highs were more significant than that of the S&P, but the breach is just the same:


Please be careful as we potentially shift from a bull market into a bear market of unknown duration.

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