Yesterday’s mixed close had more to do with a lack of new developments in the euro zone than any domestic news. Early in the day, there was a positive reaction to the November Consumer Confidence Index, which jumped to 56 from 39.8 in October. But interest in equities faded late in the day, despite strength in energy stocks, which gained 1.5% on concerns over a possible reduction in crude from Iran.
The Dow Jones Industrial Average closed up 0.28%, the S&P 500 rose 0.22%, and the Nasdaq fell 0.47%. The Big Board traded 918 million shares, and the Nasdaq crossed 440 million. Advancers and decliners were even on the NYSE, but on the Nasdaq, decliners outnumbered advancers by 1.4-to-1.
It is often helpful to consider the analysis of other technicians, especially when they compare current patterns to those of the past. This week, Mark Arbeter, chief technician of S&P’s MarketScope, draws a similarity of the current pattern of the S&P 500 to a pattern in 2008.
He notes that on the weekly chart in Q1 of that year, a double-bottom formed, then the index executed a false breakout and almost “saw a bullish cross” when the 17-week exponential, fast-moving average (blue), attempted to cross over the 43-week exponential slow-moving average (red), “just before the market rolled over to the downside,” which resulted in a further decline of over 38%.
I’ve outlined the area that most closely compares to our current situation in the first chart with the gray rectangle. The current chart uses the same moving averages (17-week exponential versus the 43-week exponential).
Now note the similarities: First, the double-bottom of August/October, then the false breakout in mid-October, and finally the failed attempt by the slow-moving average (blue) to cross through the fast-moving average (red) and the subsequent falling away of prices.
The comparison is not yet complete in that the current chart has not broken through the double-bottom. But the similarities are enough to put us on guard for the possibility of a deep correction if the important support line at 1,120 is broken. (It’s never too early to prepare yourself for such a correction with a couple of options trades.)
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.
