Support Shattered on Indexes

Sep 9, 2007: 10:57 AM CST

What we thought was a significant support level was decimated by the weakness of the Jobs Report released Friday morning.

The Indexes turned from a ‘hair of bullishness’ back to certain bearishness. Recall that all indexes are in confirmed downtrends on the Daily Chart (lower highs and lower lows). The ‘wind of the market’ from the trend structure favors the bears.

Traders wishing for bad economic news that would force the Federal Reserve to cut rates got their wish – in spades. The problem was that the news may have been far too negative, going beyond what was desired to force the Fed to act. The Fed may act now, but it might be too late.

Let’s do a fly-by of the major US Indexes:

Dow Jones:

  • Broke out of recent consolidation zone between key moving averages – to the downside
  • Still above the rising 200 period MA (bullish)
  • Volume was not significantly higher on Friday’s bearish action
  • Price is “playing around” with two converging trendlines
  • The structure of the 20 and 50 period MAs is bearish and “flat”

The Nasdaq:

  • Price made a “higher high,” which is a ‘non-confirmation’ from the other indexes that have not done so
  • Price broke both the 20 and 50 period MAs
  • The structure of the 20 and 50 period MAs is bearish and also ‘flat’
  • Price is above the 200 period MA – bullish
  • Price is above a falling trendline – bullish

The S&P 500:

  • The S&P 500 is in the most relatively bearish position of the Three Major US Indexes
  • Price is below all three key moving averages, including the 200
  • Price is still in a confirmed downtrend
  • Volume did not increase significantly on Friday’ (neutral)

The Russell 2000

  • The Russell 2000 is in the most bearish position of all major US Indexes
  • Price is below all three key moving averages, including well below the 200
  • A “Bearish Cross” or “Death Cross” just occurred when the 50 crossed below the 200
  • The moving averages are in the most bearish position – 20 below the 50, which is below the 200
  • There is significant support overhead with the moving averages and resistance trendline (not drawn)
  • The “Small Caps” typically fall faster and harder during periods of uncertainty
  • There appears to be a positive momentum divergence, but price is only consolidating, not diverging

Be safe out there. It’s a bit bumpier than traders expected last week.

 

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