The S&P 500 fell to a five week low early last Friday before rallying 1.3% intraday to close back above its 50 day moving average. The strength of the rally waned later in the day in light of the developments in Japan and weakness in Europe.
The S&P 500 topped out three weeks ago at 1344. Since that peak there was sideways consolidative trade until last week. The index slid back near its 12 week moving average to conclude trading last Friday. A weekly sell signal would be generated if all three major averages close below the 4 and 12 week moving averages.
The daily charts can give us an indication of the movements in the longer term charts. A rally after the early selloff Friday allowed for a close back above the 50 day moving average for the S&P Friday. Obviously, the market will begin the week under pressure in light of events in Japan. The question is can the market absorb this pressure and again rally off support or are we in for the first selloff in the market in several months?
The last time the S&P closed below the 50 day moving average was back in August of last year. In late August of last year the index bottomed out at 1039 before its sprint to 1344 last month. At the conclusion of trading three weeks ago the market closed above the 4 week moving average for the 12th straight week. That streak exceeded any period during the move from the market low of April 2009 to present. So, based on the time and extent of the rally, coupled with recent global events, a pullback is probably overdue.
Last week I pointed to the 1302 level for the S&P. That was the prior week’s low. The market tap danced around that number at the end of the week. Levels of interest this week are 1292 for the S&P 500 and 11,936 for the Dow. If those levels give way this week on increasing volume a key level of support for the S&P is 1275 and 11,800 for the Dow.
