Major Indices Face Moving-Average, Fibonacci Resistance – Money-Market Funds Hold Key

It is the same story with the S&P 500 large cap index (2707.88). It rallied in six of the last seven weeks, with last week essentially flat with a long-legged doji.  As was the case with the Nasdaq 100, it too faced resistance last week at the 200-day. And as was the case with the Nasdaq 100, the S&P 500 just retraced 61.8 percent of the early October-late December decline, which lies at 2713. Last week’s high was 2738.98. From the late-December low through that high, the S&P 500 added 16.7 percent.

Along the way, the index has repaired at least some of the damage wrought during the October-December rout. For nearly all of last year, the S&P 500 traded within a box, with 2800 above and 2600 below. The lower bound was lost mid-December, which led to an acceleration in selling. After it bottomed on Boxing Day, the index not only proceeded to recapture 2600-2630 but also a falling trend line from late October (Chart 3). Concurrently, post-December low, it traded within an ascending channel; it closed Friday right on the lower bound. A breakdown opens the door for a retest of 2600-2630. The 50-day lies right around there. The daily chart is way extended.

This is also true with the Russell 2000 small cap index.

Unlike the S&P 500 and the Nasdaq 100 index, the Russell 2000 (1506.39) peaked much earlier last year – on August 31 at 1742.09, to be precise.  As with the other two indices, the Russell 2000 began to fall apart early October.  By Christmas Eve, it had lost 27.3 percent, in the process losing crucial support at just north of 1600 (Chart 4). This was followed early December by loss of 1460s, which has now been retaken. Through last Tuesday’s high of 1524.21, the Russell 2000 rallied 20.3 percent.  Conditions – particularly daily – are deeply overbought.

Last week’s high was smack in the middle of the 50- and 200-day. From Friday’s close, the Russell 2000 has to rally another 5.4 percent to test the 200-day. Similarly, last Tuesday’s high fell 2.4 percent short of completing 61.8-percent retracement of the August-December decline. A test likely does not happen at least in the sessions ahead.

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Disclaimer: This article is not intended to be, nor shall it be construed as, investment advice. Neither the information nor any opinion expressed here constitutes an offer to buy or sell any ...

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