One of my favorite technicians is fond of saying, “This market is extremely technical.” I currently agree with that assessment as the market, regardless of economic, political and social upheavals, along with earthquakes and tsunamis, is trading within a very pronounced technical pattern of support and resistance numbers and zones. The market appears to be solely dependent upon the supply and demand for stocks. So let’s briefly review the current technical picture.

Here is the S&P 500:

Note that there is a broad support zone of 1,290 to 1,330 (red lines), and then focus on the high of March at 1,332 (black arrows). For the bulls to turn the market positive, they must penetrate and hold the 1,332 line. They broke above the line in early April, but quickly faltered, falling back to the 50-day moving average (blue line). Momentum (lower right in black) is negative, meaning that the balance of power is pushing against the bulls.

But Friday’s rally, which pushed the 20-day moving average (green line) over the 50-day moving average (blue line), is a short-term buy signal. However, this occurred on an options expiration day and, thus, is not a reliable signal. This may be the start of the dead cat bounce mentioned last week.

Conclusion: The S&P 500 must break and hold above the 1,332 line in order to neutralize its intermediate downtrend. Until that occurs, the best the bulls can say about the index is that the trend is neutral, but with a lower high at 1,340 versus 1,344. My opinion is that the intermediate trend is down.

Now for the current index leader, the Nasdaq:

There are similarities here with the chart of the S&P 500, but there is one significant difference: The Nasdaq has faltered three times at a very important line — its January high of 2,766. Like the S&P 500, momentum is negative and the most recent high is lower than the prior high (2,816 versus 2,840). Its 20-day moving average is crossing the 50-day, like the S&P, but this too occurred on expiration day, which is unreliable.

The Nasdaq appears to be leading the market lower. In order to neutralize its current pattern, it must close above 2,766, and then mount a successful attack on 2,816.

Conclusion: Because Friday’s meek advance occurred on a day that options expire, it is likely unreliable and due to forced short-covering. The market could rally for several days, but unless it is able to successfully attack the above barriers, investors should opportunistically sell into rallies.

However, there are some good buys right now. For one, see the Trade of the Day.

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.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.