Weekly Index View – Not as Bad

Jul 29, 2007: 8:50 PM CST

Where the major indexes stand currently, we are experiencing an orderly, yet rapid, pullback to established support zones.

Recall that as a market rises, it undergoes pullbacks to shake out excesses and allow opportunities for latecomers to establish new positions, or current traders to establish larger positions.

Markets pullback as a result of orderly profit taking from traders who have been holding at previous levels, as well as by “top-pickers” trying to anticipate the top of a move by initiating new short positions. In aggregate, these forces put downward pressure on price and often drive it down to key support zones where new buyers step in and repeat the process that creates standard uptrends in all markets.

I have shown charts previously regarding the daily position of the indexes, especially the Dow Jones. Below are the major US indexes as viewed from a weekly chart perspective.

Again, we are seeing the market at key (important) levels that should hold as support (a place where buyers will step in looking for value):

The Dow Jones:

The Nasdaq:

The S&P 500:

 

The Dow and the Nasdaq have recoiled to the rising 20 period moving averages, while the S&P has clearly broken this level. These moving averages may hold as support at current levels, while the S&P 500 is holding at its trendline, creating a second-test play.

Remember that a trendline needs three points to establish it as valid.

Should the “20” fail on these charts, the 50 period MA would be the next level of potential support… it’s 25 points away on the S&P.

Before carving out a top, a market needs to test and retest levels, and this is simply not happening right now. At current price, the market action is in the nature of an ‘orderly’ pullback, and we must treat it as such until proven wrong.

What would ‘prove’ us wrong? A lower low setting in (quite below current price), a lower high setting in (probably months away if it happens), and finally a violation of the previous lower-low.

Until this happens, odds favor continuation of the trend that has been established.

1 Comment

One Response to “Weekly Index View – Not as Bad”

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