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S&P 500 Flirting With Dangerous Support Line

Close under 1,390 would signal bearish trend change


Stocks fell into negative territory following the release of a slightly positive Labor Department report that showed initial jobless claims fell by 27,000. But disappointing earnings from several companies and fear that today’s non-farm payroll report will be a disappointment kept stocks in a downtrend for the entire session.

At the close, the Dow Jones Industrial Average was down 62 points to 13,207, the S&P 500 fell 11 points to 1,392, and the Nasdaq was off 36 points at 3,024. Volume on the NYSE was slightly higher than recent sessions at 844 million shares. The Nasdaq traded 495 million. Decliners outnumbered advancers by 2.3-to-1 on the NYSE and by 3-to-1 on the Nasdaq.

SPX Chart
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The S&P 500 is barely holding above the support line at 1,390, which defines the lower limit of a zone of support. Its intraday low at 1,389 penetrated it, but in the last 20 minutes of trading, buyers managed to nudge the index over 1,390. A close under 1,390 would signal that a bearish trend change had occurred and, more importantly, the bottom of the next support zone is around 1,360, which could be interpreted as a neckline of a head-and-shoulders formation.

XHB Chart
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Despite the market’s recent lethargy, some sectors, like the homebuilders, have maintained an uptrend. The SPDR S&P Homebuilders ETF (NYSE:XHB) was doing fine until yesterday’s reversal from Wednesday’s breakout at $22 changed the short-term trend.

For weeks, the ETF had been under accumulation, but yesterday’s sell signal from the stochastic, along with the reversal, mean that the homebuilding stocks could be the object of some profit-taking over the next week or so. Yesterday, this pattern was replicated in many sectors, which should add to the bulls’ worries.

This week has had enough negative and positive reports to make investors dizzy. Most of the economic reports have been negative, like the Chicago PMI and Dallas Fed Manufacturing Index, but there were some positives as well.

However, all eyes will be on the big jobs report, which comes at 8:30 a.m. Economists expect non-farm payrolls to be at least 163,000, but Wednesday’s ADP employment report was negative, and so analysts adjusted their expectations to as low as 125,000. Curiously, anything below that number is expected to result in a rally since more federal help will be demanded, e.g., QE3.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Article printed from InvestorPlace Media,

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