Stocks closed lower again on Friday with significant technical implications.
There is a lot going on in this chart. The black support line at 1,302 was broken on Friday, with a close at 1,300, so the intermediate trendline (upward sloping red dashed line) at 1,302 gave way, as well. The interpretation of this must await resolution since it’s impossible to draw these lines with precision. But clearly the yellow caution flag is flying because there is at least one other chart feature that has negative significance — the short-term and intermediate-term moving averages.
Note that the 20-day and 50-day moving averages (green and blue lines at the top right of the chart) closed at exactly the same number — 1,332. A break by the 20-day through the 50-day is considered by technicians as a short-term sell signal. Watch this closely this week since it could be the key to not only the immediate future but this summer’s intermediate trend.
Since the index closed several points into the next support zone at 1,260 to 1,302, 1,302 becomes the new resistance number.
However, from a longer-term viewpoint, the most important support numbers on the chart are 1,250 to 1,260 (double black dashed lines), which highlight the March low, the 200-day moving average, and the major bull market support line (not shown). This analysis coincides with the interpretation of the monthly S&P 500 chart shown in Friday’s Daily Market Outlook.
Finally, note the negative trend of the Relative Strength Index (RSI). At $37.80, the index is somewhat oversold but could become even more oversold. The down slope of the red dashed channel could dip under the March low of $33.
Conclusion: The bulls are fighting to retain control, but the bears are winning.
In the last several sessions, the falling U.S. dollar, as shown here by the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP), has had little impact on stocks. This could be a noteworthy change. If the dollar falls due to economic weakness, stocks could continue to fall with it while commodities rally, as they did on Friday. We’ll focus more on this possible change in the relationship between the dollar and other markets this week.
For one popular stock that should make investors nervous, see the Trade of the Day.
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.
