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This Bull Needs More Time to Rest

Market in near-term pullback with major support at S&P 1,340


Stocks ended a wild day of trading with mixed results that directly reflected the day’s news. Better-than-expected retail sales drove the Dow higher, but a round of profit-taking in Apple (NASDAQ:AAPL) drove the other indices lower as the stock fell for its fifth consecutive day. Fears of Europe’s financial well-being also took their toll.

At the close, the Dow Jones Industrial Average was up 72 points to 12,921, the S&P 500 was down a point to 1,370, and the Nasdaq fell 23 points to 2,988. Volume on the NYSE totaled 735 million shares while 438 million shares traded on the Nasdaq. Advancers were ahead of decliners 1.3-to-1 on the NYSE and 1.1-to-1 on the Nasdaq.

For several days, we have been focusing on the near-term chart of the S&P 500 since the action has been confined to a narrow band of support/resistance lines between 1,357 and 1,390. There is reason to believe that will change. The break under the 50-day moving average by this broad-based index for the fifth consecutive day is not good news. And the fracturing of Apple’s price structure is bound to have further negative impact as well.

SPX Chart
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The next support line for the S&P 500 is at 1,357, but momentum has turned south and even though the stochastic appears oversold, note that the red “fast” line has turned down. This tells us that selling pressure is dominating and short term the market is on the defensive. 

The next meaningful target for the S&P 500 is the support line at 1,340. Let’s hope it holds because a break there will get the bears talking of a head-and-shoulders breakdown. That, however, is getting ahead of ourselves since last week 75% of the reporting companies beat their earnings estimates.

Conclusion: The market is in a near-term pullback with major support at S&P 1,340. Traders should be taking the short side of the market while long-term investors should use this opportunity to accumulate stocks that they thought they had missed. The bull still has the field, but the chances of an extended rest are strong.

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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