Yesterday, stocks fell for the second day, as the focus remained on the economic and financial problems of Europe. Stocks opened higher, despite a downgrade of Italy’s debt, and held the gains until an hour before the close when “the troika” (European Central Bank, the European Commission and the International Monetary Fund) failed to reach an agreement on a bailout plan for Greece.

Volume was light with just 925 million shares traded on the NYSE with decliners exceeding advancers on the Big Board by 1.5-to-1. The Nasdaq was the only major index to close decisively lower, as it gave back recent gains losing 0.86% with decliners ahead by 2.6-to-1.

Even though the Nasdaq’s pullback was anticipated (see Monday’s Daily Market Outlook), selling in technology stocks was heavier than usual.

Netflix (NASDAQ:NFLX), off $13.72 on high volume, accounted for some of the sector’s woes. But throughout the session, there was talk of a generally expected failure of the sector to live up to expectations and fear that Oracle (NASDAQ:ORCL), which was scheduled to report earnings after the close, would miss analysts’ estimates. It turned out that ORCL beat estimates and upped estimates for the current quarter, and the stock rose 3% in after-hours trading.

But the Nasdaq failed to hold above its 50-day moving average, turned away from the high of Aug. 31, and picked up a stochastic sell signal — three very negative responses to important chart features — all in one day.

The market has become extremely technical — meaning that traders are focused on every technical feature of the charts. Yesterday was a fine example of an unusually heightened awareness of technical analysis as both The Wall Street Journal and CNBC commented on the failure of the S&P 500 to close above 1,220, its 50-day moving average. The S&P 500 closed lower by just 2 points. But turning away from a key resistance line like the 50-day moving average signals that there are probably not enough committed buyers to push the S&P 500 into the major zone of resistance, which is just above the neckline at 1,262. 

It should be noted that the Dow Jones Industrial Average also failed to close above its 50-day moving average and that the broad-based NYSE Composite is a considerable distance from it.

The above chart of the Russell 2000 small-cap index confirms even more graphically yesterday’s failure of a general bullish commitment. The small-cap index, like its more seasoned brothers, signaled that the path of least resistance is lower. Yesterday’s reversal day, with its close at the low of the day, accompanied by a strong sell signal from the stochastic is an indication that the next move will most likely not be against the overhead but the support lines of the bear flags of each chart.

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.

• See Serge Berger’s Daily Market Outlook: 4 Charts That Don’t Bode Well for the Market
• See Sam Collins’ Trade of the Day: Randgold Resources Is Ready to Shine
• See Serge Berger’s Trade of the Day: Go Long Humana at $80