Triple Stock Index Check at Critical Support

Jun 17, 2011: 10:11 AM CST

Traders in general are watching critical daily confluence support levels very closely this week – and so far the levels are holding into Friday.

Let’s take a quick triple index fly-by check on the key daily support levels and plot out likely scenarios.

First, the S&P 500:

The main idea at the moment is that the S&P 500 is challenging (bouncing up off of) the rising 200 day Simple Moving Average.

The average currently rests at 1,259 and yesterday’s price low triggered a flood of buy-orders that held that level successfully, which puts us currently in an an early rally mode.

As it stands, the S&P 500 is successfully holding the 200d SMA which is just above the key 1,250 level of the March 2011 low.

The market is an “edge of the cliff” bull as long as it’s above 1,250, but it’s on a collision course with falling overhead EMAs.  It will be interesting to watch what happens into these levels converging near 1,300.

The situation is similar in the NASDAQ:

While the S&P 500 held its 200d SMA level, the NASDAQ ‘busted’ it yesterday only to support strongly/powerfully off its 2,600 critical support reference level which was the prior low for 2011.

The NASDAQ also becomes a “skin of the teeth” bull while above this critical support.

Any movement under 2,600 switches the dominance to the bears, as a feedback loop of selling could open up with a push to fresh new 2011 lows.

Otherwise, we have similar collision courses to the upside (rally) into the 2,700 level occurring at this moment.

The Dow Jones strangely enough is the strongest of the three indexes – having not officially tested its critical support levels:

The rising 200d SMA rests at 11,734 (11,700 for reference) though yesterday’s low formed at the 11,900 level – not really much of anything significant.

The 12,000 is a significant psychological level that temporarily broke this week – only to recover into Friday.

The key levels to watch under this level are of course 11,700 and then the 2011 low at 11,600.

We would state that the Dow Jones showed relative strength to the S&P 500 as it did not test its 200d SMA, and also to the NASDAQ as the Dow tested neither the 200d SMA nor the 2011 price low.

Anyway – keep your trading and analysis focused on these levels as we transition into next week with the following questions in mind:

“How high will this rally take us?  Into or above EMA resistance?”

“How long will these support levels hold?  Is this a final retest for a new bull leg rally… or if these levels fail, how much does that change the game to the downside?”

Corey Rosenbloom, CMT
Afraid to Trade.com

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One Response to “Triple Stock Index Check at Critical Support”

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