Viewing the Current S&P and Russell 2000

Aug 22, 2008: 6:53 PM CST

Wow – this week gave us some fascinating action on the US Stock Market indexes.  Let’s look quickly at the state of the S&P (daily and monthly chart) and then take a peek at what I saw and commented yesterday on the Russell, which came to pass today.

First, the S&P 500 Daily Chart:

First, let’s look at the overwhelming potential for resistance at the 1,292 price area (exactly at the close of today’s action).  What’s providing potential overhead resistance that needs to be overcome?

The 50 day EMA is at 1,290.91
The 38.2% Fibonacci retracement of the current move down is at 1,292.84.
The rising trendline (of the channel or ascending triangle) terminates currently at roughly 1,290.

These are all variables known to provide critical support and resistance, and should be considered and monitored.

Notice the way I have drawn the ascending trendline (channel) on the chart.  Valid trendlines must have at least three ‘touches’ (known as “tests”), and it is important to draw a trendline that connects as many points as possible.  Also, connecting trendline closes is more valid than connecting intraday points (according to Martin Pring and other classic technicians).

That being said, we had a confirmed breakdown of the trendline both on the daily S&P 500 and Dow Jones index, and are currently re-testing this trendline from underneath.  If another trendline needs to be drawn, it will be done when more price data arrives, but we must make our analysis and decisions on what we have at the moment, and this appears to be the best fit line for our accomodations.  As such, the line could be another variable to provide resistance.

However, if price were to break through all these zones of resistance, it would be a remarkable feat worth mentioning, and the next line of resistance would be 1,320.  Why this level?  I’m glad you asked.

S&P 500 Monthly Chart:

Moving to the longer time frame chart, we see that price is in a confirmed monthly downtrend (lower lows and lower highs) and is trading beneath the key 20 and 50 month EMA (though these have not crossed over yet).  The 50 month EMA is priced at 1,315, which is also near the 1,320 price zone on the daily chart 50% Fibonacci retracement.  These would likely serve as upside targets should price trade higher early next week.  The 50 month EMA has already provided resistance just last week.

It’s worth noting that the 38.2% Fibonacci retracement off the monthly chart is at 1,268, which has provided closing (and intra-month) support in 2008 (price has failed to close beneath this critical level).  The July bottom took the S&P almost to the 50% monthly Fib. retracement at 1,172.

Note also that price has made two new momentum lows not seen since 2002, for what it’s worth.

Yesterday evening, I noticed a fascinating confluence of support on the Russell 2000 Index, and noted that in the post “Interesting Development on the Russell 2000.” I’m pleased to note that these confluence of support levels held and the Russell, along with the Dow, S&P, and NASDAQ traded quite higher today.  I mentioned this was interesting because of the likely breakdown of support on the Dow and S&P and noted that these two developments can’t (necessarily) co-exist peacefully.  Check out yesterday’s post and let’s look at the current state of the Russell 2000.

Russell 2000 Daily Chart:

On the Russell, it apperas for the moment that the 720 level will provide significant support.

What’s odd based on my take on the market?

The S&P 500 and Dow Jones Index appear to be breaking down out of a channel or possibly bearish wedge pattern, and both have significant resistance (via moving averages and Fibonacci retracements) on multiple time frames.

The NASDAQ and Russell 2000 have significant support beneath them.  I don’t show the NASDAQ here, but it’s pattern and structure is highly similar to that of the Russell.

What gives?  I’m not magic enough to answer that question, but I can point out that this is a strange development, with strong technical positioning on two indexes, and weak technical positioning on the other two.  Generally, all four indexes show similar structure, and it’s not very often that we get such massive divergence (conflicting signals) as I’m seeing now.

If you’re seeing something I’m totally missing, please let me know.  Otherwise, we’ll wait and see how this “conundrum” resolves itself, and not get too aggressive either way until the ‘coast is clear’.

Fascinating times!  Please be safe out there.

3 Comments

3 Responses to “Viewing the Current S&P and Russell 2000”

  1. JB Says:

    I totally agree that the market looks a little weird. It’s not a technical indicator but the options markets have also diverted with the same major indices. If you haven’t, take a look, it’s a strange phenomenon.

  2. Richard Says:

    Corey you ask “What gives?”

    What gives, is that the Dollar Rally that began July 14, 2008, and which ran through August 15, really “goosed up” the consumer stock laden Nasdaq, and the financial stock dependendent Russell 2000, as is seen in the Yahoo Finance three month chart of UUP relative to the four major indices.

    Peak Dollar occurred August 15, 2008 — and this week gold, GLD, has risen 2% and the overall stock market, VTI, has fallen 1%.

    Now that Peak Currencies has passed on July 25, 2008, and Peak Dollar on August 15, 2008, an investment sea change has occurred: gold has arisen as the defacto world currency, and the measure and means of wealth preservation.

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