S&P 500 Approaching 1040 Neckline...IWM Loses Yearly Trend Line.....

Stock-Markets / Stock Markets 2010 Jun 08, 2010 - 02:58 AM GMT

A lot of bad stuff took place technically for the market today. The Nasdaq finally lost its 200-day exponential moving average currently at 2224 while the iShares Russell 2000 Index (IWM) or the ETF for the small caps, the very best performer this year, lost its 200-day exponential moving average. on to of that, the IWM also lost its yearly trend line of support and you'll see that tonight in one of the available charts for your viewing.

Leading sectors losing trend lines and losing 200-day exponential moving averages is not good news for the bulls. Not by a long shot and thus needs to be respected for what it is. It's very ominous for the bulls that the mid-caps also lost the trend line and the 200-day exponential moving average. No matter where you turn you can see bad news technically and no matter how bullish many want to be, you have to respect what we're seeing in terms of breakdowns out of massive support zones. As I like to say, it is what it is, and you better take note of the price action and how no one seems to be stepping up to support this market. Let's take this one step further.

The S&P 500 is now only two points away from having the 20-day cross the 200-day exponential moving average, and that would not be good news for anyone who thinks we're about to blast higher. This would put the lowest critical moving average below the highest. Never good news for those who are bullish only. The breaks below trend lines and those critical 200-day exponential moving averages tells us to be aware of further selling. We're oversold and should bounce soon as the 60-minute charts are suggesting, but the resistance above is nasty and upside thus limited. That 1040 neckline is going to get a workout soon enough.

We were down massively last night as the overseas markets opened with huge gaps down. The market found a way to recover as near-term oversold conditions kicked in. We went from being down 130 points on the Dow last night to up roughly 30 at the open. After spending some time between flat and up 1/2% or so, the market finally gave way as the day wore on. The last hour saw selling accelerate allowing the markets to finish just off the lows for the day. Nasty action with all the critical sectors now down below their 200-day exponential moving averages. Bad action for this day which was confirmed by another atrocious advance/decline line. Never good to see the majority of stocks selling off to confirm price if you're looking to play spin doctor with them down day that just took place. Not much spinning going on here by the bulls.

There is a long-term head-and-shoulders pattern in place on the S&P 500. It has taken many months to set-up, and if it plays out completely, the market is in for some very nasty pain. SPDR Barclays Cap Interm Term Credit Bnd (ITR) measures to 860 S&P 500. However, there is some hope for the bulls in that by far the head-and-shoulders pattern is the most unreliable pattern in the world of technical set ups. It plays out a bit over 50% of the time while the more bullish inverse head-and-shoulders pattern plays out about 80% of the time. Why?

Because upside is the dominant side of the stock market as the market almost always go higher. It's just staying out of the bear markets that'll make your market experience a really good one. Bear markets are shorter in duration but far more nasty, so even if markets go down in price over a multi-year period, the market will still have had much more upside periods than down ones. This particular head-and-shoulders is really nasty looking and thus the fight is on right here. A close below the double-bottom at 1040 is where the pattern begins to get scary for the bulls.

The low in February at 1044. The most recent low at 1040 intraday. We are making new closing lows right now in the pattern and this too is ominous. Bottom line is the market is at a cross roads here. The bulls need to hold the fort at 1040 in the worst of ways, while the bears look to take the bulls to their knees with a strong break down below this critical support level at 1040.

The iShares S&P MidCap 400 Index (IJH), or small cap representative, closed at 72.19. Its 200-day exponential moving average is at 72.96. The LWM closed at 61.92 with its 200-day exponential moving average currently at 63.26. The Nasdaq closed at 2173. Its 200-day exponential moving average is at 2224. Take a look at those numbers folks. The three leaders in this stock market, the small-caps, mid-caps and the Nasdaq need to get back above their 200's and fast. If they don't and continue to fade the market will be lost to the bulls because then the 200-day exponential moving average will be too tough to get back through. The bulls at the end of the line here. Act now or lose the market for a while longer than they'd like to think possible. These are extremely interesting times and a critical time for the bulls if they hope to keep the bull market off the March lows alive.

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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