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S&P 500 Just 7 Points From Crucial Support

Break through current support zone would change near-term trend to down


With little influence from Europe’s exchanges, which were closed yesterday, the reason for the fourth straight decline in stocks was uncertainty due to Friday’s unexpectedly poor jobs data and fear that Q1 2012 earnings will be significantly lower than the prior quarter. The decline followed the worst week for stocks this year, and added to yesterday’s declines, the S&P 500 is off 2.6% in the last four days.

Stocks opened lower, rallied until mid-afternoon and ended with a flourish of selling. At the close, the Dow Jones Industrial Average was off 131 points at 12,930, the S&P 500 fell 16 points to 1,382, and the Nasdaq lost 33 points at 3,047. Volume on the NYSE totaled 724 million shares, while 385 million traded on the Nasdaq. Decliners were ahead of advancers by about 4.5-to-1 on both exchanges.

Dow Chart
Click to EnlargeTrade of the Day Chart Key

Yesterday was not a good day for the Dow industrials. The index broke its support zone at 13,000 to 13,082, as well as the 50-day moving average at 12,980, as clearly shown on this magnified view of the important support lines.

SPX Chart
Click to Enlarge

A close-up view of the S&P 500 shows that the technical damage is not so severe as the Dow’s, but it is still of concern. Yesterday the 20-day moving average (green line) was decisively broken, and the low of the day at 1,378 is just 7 points from the crucial support at 1,371 which marks the “technical line in the sand” as technician Michael Ashbaugh puts it. And he is correct since the 50-day moving average closed at 1,371, and the 50-day is considered to be a significant technical feature.

Tomorrow we’ll take a closer look at the many support zones beneath where the two important indices stand. But simply put, a break down from the current support zones would change the near-term trend to down and the intermediate to sideways. The long-term trend would remain up, but crushing the support on the above charts could lead to a long, hard struggle for the remainder of the spring and summer. Let’s hope that the first of the big Dow stocks, Alcoa (NYSE:AA), does better today than the 4-cent loss that analysts estimate.

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.

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