The broad market finished slightly higher yesterday following the big sell-off on Friday. But the Dow industrials scored their fourth consecutive loss due to the elections in Europe, which produced a socialist administration in France and chaos in Greece. But the overall impact of the elections may have been muted by a holiday in Britain and short-covering elsewhere.
At the close, the Dow Jones Industrial Average was down 30 points to 13,009, the S&P 500 rose almost a half point to 1,370, and the Nasdaq gained a point at 2,958. The NYSE traded 753 million shares and the Nasdaq crossed 447 million. Advancers were slightly ahead of decliners on both exchanges.
The Nasdaq’s meager gain yesterday obviously does little to stabilize its fragile condition (see Monday’s chart). In order to achieve any stability, the Nasdaq would have to close above the break point of 3,000. If buyers emerge and pop the index to 3,000, it would be, at the first thrust up, a good place to short the index.
The S&P 500 may not look as menacing as the Nasdaq, but it presents some serious problems for the bulls. The second high of the double-top is lower than the first, thus a penetration of support at 1,357 would result in a lower high and a lower low, and its impact would technically be a change in the intermediate trend.
But even if the bulls hold above the support line at 1,357, the best that they can claim is that the index is in a sideways pattern. And the drawn-out tension of a summer of trading in such a narrow zone might be fun for traders, but will likely be torture for everyone else.
Conclusion: For the near and intermediate term the bears are in charge. But near term the market is oversold, and yesterday’s failure to follow through with another blast of selling probably indicates that a brief rally is due.
Since the immediate trend is now confirmed as down, traders should sell into rallies, especially above the S&P 500’s 1,380 line where a huge group of holders appears to reside. Courageous bulls could be tempted to buy close to the 1,357 line of the S&P 500, but they had better use very close stop-losses since the implication of a breakdown from that level is very serious.
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.
