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Market Very Close to Important Violation

Penetration of Dow's 200-day moving average would trigger overall market alert


Editor’s Note: Stocks are down more than 75 points in pre-market trading as a huge storm heading toward the eastern United States caused the New York Stock Exchange and CME Group to close trading floors. Electronic trading will continue.

On Friday, stocks meandered their way within a 100-point Dow range. The opening was lower due to the overhanging poorer-than-expected earnings after Thursday’s close from Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN). But the Gross Domestic Product (GDP) for Q3 was reported as 2% where analysts were expecting 1.9%, and stocks took back the early losses closing near breakeven.

At Friday’s close, the Dow Jones Industrial Average was up 4 points to 13,107, the S&P 500 gained 1 point to 1,412, and the Nasdaq rose 2 points to 1,412. The NYSE traded 738 million shares and the Nasdaq crossed 423 million. Decliners exceeded advancers on both exchanges by about 1.4-to-1. For the week, the Dow was off 1.8%, the S&P 500 fell 1.5%, and the Nasdaq was down 0.6%.

On Friday, we studied the weekly and daily charts of the S&P 500, and today we will look at the weekly chart of the Dow, and then the daily charts of the Dow and the S&P 500 to see if there are any significant differences that might have an impact on the broad markets.

Dow Weekly Chart
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Although the overall pattern is similar to the S&P 500’s (see Friday’s Daily Market Outlook), note that the industrials have not only broken the first line of support (now resistance) at 13,295, but Friday’s intraweek low came very close to its next support line at 13,000, as well as its 200-day moving average.

Dow Chart
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SPX Chart
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Trade of the Day Chart Key

The differences become clearer on the daily chart. The S&P 500 has minor support at 1,397, but its next important support is the July 2011 high at 1,356 with a moving average at 1,377. It closed on Friday at 1,412. And the Dow is also much closer to its 200-day moving average than the S&P 500.

Conclusion: Although similar to the S&P 500, the Dow’s chart is technically weaker, because the Dow is closer to its 200-day moving average and the important support at 13,000.  

Earlier this year, both the Dow and S&P 500 penetrated their 200-day just once, but that was simultaneously during the June correction. A violation of its 200-day moving average by the Dow alone would trigger an overall market alert and suggest that a fall in the S&P 500, and thus the broad market, would not be far behind. 

The Nasdaq has a similar chart, but has thus far held above its 200-day moving average (see Oct. 23 Daily Market Outlook). It is a time to be cautious and vigilant, and not a time to rush to either buy or sell, but we may get an excellent buying opportunity later in November. 

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.

Article printed from InvestorPlace Media,

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