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Wednesday, June 5, 2013

Watch These Support Numbers as a Correction Takes Hold

NASDAQ Panelists
 (Photo credit: Think London )

Some serious cracks in the near-term trend cast doubt on the market's ability to continue its sharp angle of advance

The minutes of the latest Fed meeting suggested that some members were pushing for an earlier cutting back of Fed purchases of bonds. In the convoluted world of the stock market, the Dow industrials rallied by triple digits on Monday after a U.S. manufacturing index fell more than expected.
At Tuesday’s close, the Dow Jones Industrial Average was off 76 points at 15,178, the S&P 500 fell 9 points to 1,631, and the Nasdaq was down 20 points at 3,445. The NYSE traded 787 million shares and Nasdaq crossed 474 million. On the Big Board, decliners outpaced advancers by 1.7-to-1, and on the Nasdaq, decliners were ahead by 2.1-to-1.

Chart Key
The Nasdaq is still holding to its near-term uptrend — but barely. A bearish pyramid, a minor topping formation, with support at 3,420, dominates the chart.
The next support line is at the top of the gap at 3,370 to 3,305, and in the middle of the gap is the index’s 50-day moving average at 3,343. The important intermediate support line is at 3,250, and the 200-day moving average is at 3,151. MACD is on a sell signal, and that too is indicative of an impending correction.
Conclusion: For almost six months, the market’s trend had been technically bullish with few minor inconsistencies. Now, however, some serious cracks in the near-term trend cast doubt on each index’s ability to continue its sharp angle of advance.
The Key Reversal Day of May 22, which resulted from the release of the minutes of the April Fed meeting, was the first alert. On Monday, the head-and-shoulders break of the Dow transports was noted, and Tuesday, the industrials closed below their 20-day moving average at 15,275. The streak of advancing Tuesdays also came to a halt at 20. The last is of little technical interest but will no doubt have a psychological impact on the near-term trend.
No market advances forever, and constructive corrections are expected. I assume that the near-term support of each major index will fold, and so we will move to the next area of support.
The first important line in the sand for the intermediate trend is the support line of the 50-day moving average on each index. For the Dow industrials, it is at 14,904, for the S&P 500, it is 1,603 and, as noted above, the Nasdaq’s line is at 3,343. These are important numbers on which to focus since it is at or around them that we expect buyers to re-emerge.
It is again time to make a list of quality stocks at prices that you consider a “bargain” since it is likely that sometime within the next 60 days you will see those prices.
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