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Friday, July 13, 2012

Market Hangs on the Precipice of a Breakdown

Bull channel remains intact, but MACD issued sell signal

By Sam Collins, InvestorPlace Chief Technical Analyst

Stocks opened down on Thursday, influenced by sharply lower prices in markets around the globe. But from mid-morning to just before the close, stocks moved steadily higher, and by 3:45 p.m., the market was struggling to post a gain. However, in the final minutes, selling in the financial and technology sectors drove the indices to modest losses.
At the close, the Dow Jones Industrial Average was off 31 points at 12,573, the S&P 500 fell 7 points to 1,335, and the Nasdaq was off 22 points at 2,866. The NYSE traded 728 million shares and the Nasdaq crossed 459 million. Decliners outpaced advancers by 1.4-to-1 on both exchanges.
 SPX Chart
Nasdaq Chart
Trade of the Day Chart Key
Thursday’s wild swings ended with mixed signals that told us little about the near-term direction of the market. The S&P 500, after a wild day during which the intraday low penetrated the support line of its channel trend, flipped up and closed exactly on the 50-day moving average — the most important technical feature of the chart. And, like the Nasdaq, its 20-day moving average flashed a buy signal, crossing up and through the 50-day moving average. As for the tightly restricted bull channel, it remained intact as a result of the afternoon rally.
On the negative side, both indices, along with the Dow, had a sell signal triggered from the MACD, one of our most reliable internal indicators.
Conclusion: The market continues to hold onto a slightly bullish bias despite bad news from around the world and earnings shortfalls from fresh Q2 reports. Even so, stocks have fallen for six consecutive days, and on Thursday, closed on the precipice of a possible breakdown. Furthermore, the MACD sell signal is bad news for the bulls. And so, despite their tenacity, it would be wise to sell into rebounds and wait for further guidance.

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