Bears Attack U.S. Indexes but Moving Averages Come to the Rescue
Declan Fallon | Jan 20, 2023 06:01
After a positive start to the year, U.S. indexes suddenly found themselves under a heavy bear attack this week. Yesterday, the hardest hit was the Dow Jones Industrial Average as it fell below the 50-day MA and into December's congestion.
Technicals are net bearish, adding to the index's selling pressure. I would be looking for a test of the 200-day MA this week - a moving average currently running along horizontal support of the September swing high and the December swing low.
The Nasdaq 100 finished on its 50-day MA and is still holding to bullish net technicals. The index continues to gain relative strength over the S&P 500. So, the net damage was negligible, but it isn't favorable if other indexes continue to decline.
The S&P did not suffer as much as the Dow Jones index and has been relatively low-key in its actions over winter. Aside from the continued loss in relative performance to the Russell 2000, there are a couple of red flags.
The volume climbed to register as distribution, and technicals have become bearish. The index has also been turned for a second time its 200-day MA - although repeated tests of a given resistance have a greater probability of a breakthrough.
The Russell 2000 has a support to lean on, but it registered two consecutive days of distribution and was rebuffed by the resistance of November highs. The technicals are primarily bullish, which is positive.
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We will have to wait and see how much today's pause meant for the next trading session. The current rally was a belated Santa one, but it is now under risk. We want to see moving averages defended because if these fail, we will look at retests of October lows.
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