Major Indices Dangerously Close to Critical Line

The Dow industrials rose for the first time in four days, but only because of better-than-expected earnings from Boeing (NYSE:BA) and Caterpillar (NYSE:CAT). Following a mid-afternoon rally, other indices fell and ended unchanged due to mixed earnings and a nasty new home sales number. And Europe managed to inject a negative as Egan-Jones lowered Italy’s sovereign rating.

At Wednesday’s close, the Dow Jones Industrial Average was up 59 points to 12,676, the S&P 500 was fractionally lower at 1,339, and the Nasdaq fell 9 points to 2,854. The NYSE traded 782 million shares and the Nasdaq crossed 474 million. On the Big Board, advancers were slightly ahead of decliners, and advancers outpaced decliners on the Nasdaq by 1.4-to-1.

SPX ChartClick to Enlarge







Trade of the Day Chart Key




The S&P 500 has been somewhat stronger than the Dow indices, as well as the Nasdaq and NYSE Composite. This may be due to government support, but nevertheless, the index has fallen to a critical zone. 

The upward trendline of the bull channel rests almost on the 50-day moving average at 1,333, giving that number added weight. And just below that line is the 200-day moving average at 1,316, which, if broken, would send the markets lower. 

Conclusion: Of the five most-studied indices, two are now under their respective 200-day moving averages: the Dow Jones Transportation Average and the NYSE Composite Index. The Dow Jones Industrial Average, S&P 500 and Nasdaq are trading just above that technically important line. That line is considered critical, and a violation of it would create a lower low for the S&P 500 and Nasdaq, and flash a clear intermediate sell signal. 

Continue to focus on technical analysis since it is often the most reliable way to forecast the direction of the market’s next move. And patiently wait for stocks like Apple (NASDAQ:AAPL) and others on your buy list to come down to a price that you are willing to pay, since volatility caused by dramatic headline news often creates great buying opportunities. (See how far I think AAPL will fall before you should buy.)

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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