Midweek Major Index Level Update May 20

May 20, 2010: 10:27 AM CST

Very interesting developments occurred on the major US Equity Indexes this morning – let’s take a quick fly-by overview of the Dow, NASDAQ, and SP500 to see what happened and what levels to watch next.

First, the Dow Jones Daily:

This morning, the Dow Jones Index, which is watched by many retail investors and TV Commentators, broke the 200 day simple moving average at 10,258.

Why is that significant?

To some traders and analysts (particularly who don’t watch charts much), this level is the defining line between a bull market and a bear market.

It’s a bull market if we’re above the 200 day SMA; bear market if we’re under it.

Thus we could see retail selling coming into the market if we close and remain under this level – as sort of stop-loss against further expected losses.

The technical price level to watch for potential support – unless this is a bear trap – is 9,900.

Next, the NASDAQ:

The NASDAQ tipped under its 200 SMA but remained above its critical support level at 2,200… but is currently sitting on its 200 day SMA at 2,221.

If under 2,200, then the next support target becomes 2,125.

Finally, the S&P 500:

The big news perhaps today is that the S&P 500 – like its Dow Jones counterpart – sliced through the 200 SMA at 1,102, also breaking the key support at 1,100.

While under these levels, the next zone of potential support is 1,050 – just above the February 2010 lows.

* * *

I’m also showing – as an educational example – the crystal clear negative divergence in the 3/10 Momentum Oscillator that preceded the market top in April, just like it preceded the swing low bottom in February.

There’s a potential that we’ll repeat the January/February sell-off then recovery – so far the pattern looks similar – so keep that at least in the back of your mind as a possibility.

If we continue lower to break under the respective February lows in the indexes, the odds of a repeat performance (of a March-style recovery) decrease.

Keep these important levels in mind as we draw ever so close to a re-classification of the daily chart trend to be officially down.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

1 Comment

One Response to “Midweek Major Index Level Update May 20”

  1. TheYenGuy Says:

    Stocks fell early again today as more investors woke up to the possibility that economic problems such as Europe’s debt crisis might spread around the world and that the benefits of the Federal Reserve’s Quantative Easing have played out. They were also concerned that bank credit tightening in China will slow economic growth there and globally. Then late in the day came the bombshell: the Senate voted to vote on US financial regulatory reform, causing capital to take flight from the marketplace. This market is going down in a 1929 to 1932 type collapse from a recent “green shoots” rally. One can find more analysis on the referenced link.