Can the Major Indices Hold Above This Critical Line?

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The major indices rallied sharply Friday but registered losses for the week, which is common on the week following Q3 triple witching options expiration. Volatility was very high.

Dow component Nike (NKE) jumped 12.2% after reporting better-than-expected earnings. Micron Technology (MU) rose 6.7% after beating revenue expectations, and Apple (AAPL) gained 2.9% following a sharp loss on Thursday.

The broader market rally accelerated after the Commerce Department reported that growth in Q2 was revised higher to 4.6%. The market interpreted this as an indication that the economic recovery is on target and that it can cope with the end of the Federal Reserve’s bond buying program, which is set for October.

The U.S. dollar continued to rise versus a basket of other currencies. The PowerShares DB US Dollar Bullish ETF (UUP) gained 1.1% for the week and 3.5% so far in September.

At Friday’s close, the Dow Jones Industrial Average gained 167 points at 17,113, the S&P 500 rose 17 points to 1,983, the Nasdaq jumped 45 points to 4,512, and the Russell 2000 rose 9 points to 1,119.

The NYSE’s primary market traded 630 million shares with total volume of 2.9 billion shares. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 2.7-to-1. On the Nasdaq, advancers were ahead by 2.1-to-1.

For the week, the Dow fell 1%, the S&P 500 lost 1.4%, the Nasdaq was down 1.5%, and the Russell 2000 fell 2.4%.

RUT Chart
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Chart Key

Friday’s bounce in the Russell 2000 from the August low is a temporary reprieve from the death cross of Sept. 19. However, MACD is now oversold and that is a positive.

Nasdaq Chart
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Friday’s recovery rally ended with the Nasdaq above Thursday’s breakdown at 4,485 and its 50-day moving average at 4,495. This is positive but only if the index can continue to rally this week.

SPX Chart
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The S&P 500’s chart is most interesting because of its lack of evidence of a change in the intermediate trend. Like the Nasdaq and Russell 2000, it reversed above Thursday’s break at the 50-day moving average. And it has not broken either the intermediate trendline or support at 1,910. However, its MACD is not oversold, and it has failed to challenge resistance at the former support line (now resistance) at 1,990.

Conclusion

Friday’s action was positive in that every major index reversed and closed above its 50-day moving average. The 50-day moving average in each index has now become an important inflection point. If they hold, that’s a strong positive; however another close below them will most certainly be interpreted as a negative.

Another negative is volume. Thursday’s NYSE’s down volume versus up volume was 11-to-1. This is usually interpreted as a strong negative, especially if followed by daily downside volume of 9-to-1 or more this week.

Presently, the near-term trend is down with the intermediate trend in danger of reversing to down. The long-term trend is still powerfully bullish, which means that if we do get a genuine pullback, some terrific bargains should surface. Keep cash on hand to take advantage of this. If you are a trader, sell into any short-term rally until the intermediate trend is sorted out.

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/2014/09/can-major-indices-hold-critical-line/.

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