The markets are in a precarious position right now, from a basic level technical analysis overview. How so?

First, we have had a large volatility impulse down which has made new momentum lows. We are now experiencing a ‘counterswing’ up that is being met with potential resistance overhead, which must be overcome (or ignored) by buyers hoping to push prices higher.

On each of the major charts, the ominous Fibonacci retracement level of 62% hangs above each of the indexes, as does a confluence of the 20 period and 50 period moving averages above. These triple threats could bring out sellers who will be betting in force that these levels will thwart any further upside potential. The Russell 2000 (small cap stocks) has taken the hardest hit of the four major indexes.

I want to see price close above these levels before I can become a raging bull yet again – the markets still are not out of the ‘bear-filled woods’ yet. Let’s see some charts:

The Dow Jones is showing the strongest relative strength:

Of the major indexes, the Dow is the only one to have closed above the 50 and 20 period moving averages… yet price failed ‘magically’ at the 62% Fibonacci retracement.

The Nasdaq is showing “double” resistance:

The S&P must overcome “Triple Resistance”

To quote one of my friends: “The Russell looks like death right here”

Price has fallen below the 200 moving average, which is a level many market observers consider the “line in the sand” between the bulls and bears. Price has rallied up in a potential ‘counterwave,’ and the new momentum lows might signal lower prices to come. Let’s hope price can overcome the confluence of moving average resistance… none of the averages served as significant support recently.

I can guarantee that some traders will be initiating new short positions at these levels, but the bulls (buyers) must overcome the selling pressure that the sellers wish to inflict.

Neither side is safe, and the ‘fog of war’ clouds many traders’ judgment.

Be careful out there.