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Technical Barriers Stand in the Market’s Way

Resistance likely to prevent a sharp advance, but volatility should provide quick profits

By Sam Collins, InvestorPlace Chief Technical Analyst


This week started on a cautious note following last week’s blast-off in which the Dow gained 421 points. Talk that both political parties were hunkering down into established rhetoric, European economic woes, and a report that Thanksgiving sales were less than last year accounted for the mixed results.

At Monday’s close, the Dow Jones Industrial Average was off 42 points at 12,967 and the S&P 500 fell 3 points to 1,406, but the Nasdaq rose 10 points to 2,977. The NYSE traded 632 million shares and the Nasdaq crossed 390 million. On the Big Board, decliners led advancers by 1.3-to-1, and on the Nasdaq, advancers were ahead by 1.2-to-1.

Dow Chart
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Trade of the Day Chart Key

The broad market was hit with a loss Monday as strong technical barriers combined to slow down the recent advance. The Dow ran into resistance, closing below its 200-day moving average at 12,993.

Although the Dow had an intraday high of 13,008 and Friday closed at 13,010, the index failed to hold Monday, and that’s an unfavorable sign. Strong overhead resistance argues against a further sharp advance. The line at 13,040, which marked the Dow’s November breakdown, and the broad area from that line to the 50-day moving average at 13,245 will likely provide a difficult zone of sellers.

Russell 2000 Chart
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The chart of the small-cap Russell 2000 index is straightforward. The index closed Monday just 1.51 points above its 200-day moving average. Resistance starts at the downtrend line at 815, which represents a broad area of trading for the past eight months. The 50-day moving average at 824, and falling, is the next line of resistance. The MACD indicator flashed a buy signal on Friday.

Conclusion: On Monday, the technology stocks, represented by the Russell 2000 and Nasdaq, benefitted from new buy recommendations on Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Research In Motion (NASDAQ:RIMM) and Yahoo (NASDAQ:YHOO). But investors continue to shy away from stocks with high dividends fearing that a tax increase on dividends will drive the shares lower.

Despite a buy signal from the MACD indicator, it is unlikely that stocks will rally much higher than the overhanging resistance between the indices’ 200-day moving averages and 50-day moving averages.

Long-term investors should establish prices at which they are willing to buy, while nimble traders will likely be challenged by more volatility between now and Christmas that will provide for quick profits on both sides of the market.

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, https://investorplace.com/2012/11/daily-stock-market-news-the-technical-barriers-standing-in-the-markets-way/.

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