After briefly breaking out of a fairly tight trading range towards the end of the last week, the market reversed course in a big way on Thursday and Friday. Conditions were certainly ripe for some profit taking, especially with strong resistance remaining in the Nasdaq, but the magnitude of the decline raises a red flag. The Dow looks awful at this point, plummeting below all major resistance levels in just 2 days. The S&P and Nasdaq are fairing much better, with each above major support levels of the 50 and 200 day moving averages. The action indicates that we’ll probably remained mired in a choppy trading range for at least a few more months. It just seems highly unlikely that the market can muster enough strength to break out any time soon.
It should be a very interesting week ahead of the holiday weekend with the FOMC meeting on Thursday coinciding with end of quarter reshuffling. After locking in profits and/or limiting losses on nearly half of my positions over the past couple days, I for one won’t be doing any more major buy and selling until the end of the quarter flurry is firmly framed in the rearview mirror. We’ll have a much better idea of the health of the market several days after the 4th of July.
In the chart below, you see that the Dow has broken through major support of the 50 and 200 day moving averages with heavy volume. The next logical support for the Dow would in the area of the Dow 10,000, where it found support in the last leg down. It’s going to be very difficult for the Dow to put the brakes on the downward momentum and push back up through those major resistance levels. Doing so quickly would be a major positive for the market, but I just don’t see that happening.
You see the Nasdaq hitting resistance at 2100 once again. I wouldn’t be placing large bets on much of anything until the Nasdaq can clear that resistance area with good volume. Next logical area of support around 2000.
The S&P remains in much better shape than the Dow, but it’s difficult to ignore that head and shoulders (although not very symmetrical) topping action. Look for firt support around 1175.