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

After six consecutive up weeks, last week was up 0.3 percent, but the Russell 2000 was unable to hang on to the gains, resulting in a candle with a long wick. Signs of fatigue are showing up. The daily in particular is grossly extended.

In the event of weakness ahead, small-cap bulls can step up at the 1460s (Chart 4) on the Russell 2000, with the 50-day at 1438.61. Similarly, on the S&P 500, the 50-day approximates support at 2600-2630 (Chart 3).  And on the Nasdaq 100, there is decent support at 6600 (Chart 2), with the 50-day at 6632.17. This is the risk near term for longs.

Bulls have done a good job of erasing a good portion of the loss suffered in October-December, but it is possible – even probable – they have hit the wall for now. For the afore-mentioned support to hold, funds need to cooperate.

As stocks began to unravel early October, US money-market assets began to rise – from $2.87 trillion in the week ended October 3 to $3.06 trillion as of last Wednesday, although they are slightly down from $3.07 trillion four weeks ago. The four-week moving average in Chart 5 is slightly under pressure since peaking at $3.05 trillion two weeks ago. Consequently, the green line is hooking down a tad. Particularly since last July, these assets have gone up sharply, and can potentially act as dry powder. This is bulls’ dream-come-true scenario in which funds begin to move from money markets into equities. That said, even after a monstrous rally in January, money-market assets kept rising. This needs to change. Else, bears in due course would be gunning for the lows of late December.

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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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