Can the 50-day hold?

Stocks took it on the chin this week as the markets continue to digest the constant flow of news out of Europe. The Dow Jones Industrial Average (chart) fell 2.94%, the Nasdaq (chart) -3.97%, the S&P 500 (chart) -3.81% and the Russell 2000 (chart) -3.39%. This despite some positive U.S. economic news released earlier in the week regarding the consumer, and Friday’s report by the Conference Board on its index of economic indicators, which is bullish.

Separate from all of the headlines that we are bombarded with on a daily basis, I always keep an eye on how the markets look from a technical standpoint. Right now it appears that we are continuing to trade in an extended trading range. Historically speaking, the longer indexes or equities trade in an extended range, the more explosive the breakout will be. Let’s take a look at the S&P 500 (chart). As you can see, since early August this bellwether index has essentially traded between 1100 and the 1275 level. Both ends of this range has been tested multiple times only to stop and reverse its course.

The S&P 500 now is testing it’s 50-day moving average and should that hold true to form, we could easily see ourselves testing the upper end of the trading range once again. Should the 50-day fail and the S&P breaks down below it, there is a strong likelihood that we would revisit the bottom end of the range or 1100 level. I am looking forward to the day that this market experiences a true breakout. That would make the trading picture a lot more clearer, which would give investors and traders alike, a more definitive view at least from a technical perspective.

Have a great weekend 🙂