Fourteen days ago, the stock market closed at a new high, but following a round of profit-taking, the bulls have been struggling to regain the momentum. Yesterday, stocks rose for the third straight day but still haven’t conclusively taken control of the near-term trend. What must they do to regain that control?
Yesterday we examined the chart of the Dow Jones Industrial Average and concluded that it was necessary for the Dow to break above its 20-day moving average and the downtrend of a flag formation, both at 12,640. The Dow closed at 12,605, up 45 points, but not quite there yet.
Today, we examine the S&P 500 to see how it is faring under the same scrutiny. Note that it, like the Dow and Nasdaq (shown on Tuesday), reversed and closed above its March high support line at 1,332 (a positive), but failed to close above the resistance line of a flag. Unlike the Dow, the S&P 500 has closed above the red resistance line of its bullish flag formation — a buy signal — and it flashed a stochastic buy signal when the red (fast) line crossed up through the blue (slow) line on the bottom of the chart.
The S&P 500 has not yet closed above the simple 20-day moving average (light green line), but has closed above an important variation of this indicator called the exponential 20-day moving average. I’ve included an exponential average since many technicians use it to define near-term trends as it gives greater weight to more recent data in an attempt to reduce the lag of older data.
And so this chart is supportive of a more bullish stance, but not conclusive. Volume and breadth have been weak for three days, and if that issue can be resolved with a strong close above the simple 20-day moving average, I will be 100% bullish for the short, intermediate and long term.
For one stock I am 100% bullish on, 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 asksam@investorplace.com.
