The market played catch up to the 50-day moving average last week. It failed to break above it on the first try. Then later in the week, market indices broke down through a month-long continuation pattern in disappointment over the Fed’s new policy and on weak economic numbers from Europe and China. Friday, the S&P 500 failed to rally above the September 12th low. Today, it closed above and is now testing the underside of the month-long continuation pattern(s) in each index. The RSI indicator seems to be trying to hold bullish support at 40. This is interesting and is warning that last week’s selloff didn’t have enough momentum to break the bull’s support at 1120. In addition to key horizontal support, oversold levels on breadth + TRIN were reached in last week’s selloff. That’s why we’re bouncing. The U.S. stock market continues to trade in a narrow trading range.
Going forward, there are some resistance levels to consider:
- The underside of the continuation patterns (called a retest)
- The 50-day moving average
- Gap resistance of 2537 for the Nasdaq Composite
- Last week’s highs
The current positives that are lifting the market are:
- Horizontal support at the August lows
- 14-day RSI holding above 40 (possible bullish shift in the indicator to a 40-70 trading zone)
