Breaking Bad

In last weekend’s SA article, I noted that the primary moving averages (50 and 200 day) were converging on the current price level in all of the major U.S. equity indexes. The read was that we were near a break out…or a break down. For many weeks now I have also been advising readers to take note of the U.S. dollar index testing resistance at 80. Today the dollar has broken 80 on the third attempt, and is currently near the high for the session.

At yesterday’s close, both the large cap S&P 500 and the small cap Russell 2000 finished a losing trading session right at the 50 day. Today they have both broken to the downside on increased volume. Yesterday the NASDAQ Composite broke, and continued down today. The Dow Industrials, recently the strongest of the bunch and the only one to hold the 200 day, has broken that mark and bounced off the 50 day (there are only ~170 Dow points between the two). The Transports are a step ahead, and have broken the 50.

Unless this is a head fake, and the Fed meetings this week produce something to move the markets higher, today’s trading should be seen as a warning to investors and traders sitting on long positions to pay attention. The dollar is rallying, U.S. Treasury yields are down sharply as Italian yields spike, stocks are selling off, and crude oil is currently looking at a $5 daily loss. You could theorize that the smart money is trying to drive risk asset prices down ahead of another round of QE so they can buy in lower, or you could take the price and volume action at face value.

Returning to the S&P, since the summer swoon the 1,200 level has alternately formed support and resistance. The index is at 1,214 as of this writing, so I would be looking for a test of that support level very soon. A failure to hold it would open up the November low around 1160, and possibly on to the October low in the 1,075 – 1,100 area. Be careful out there!


Monday Pre-Market Notes

The US Dollar index is climbing back toward 80 this morning, with renewed eurozone jitters weighing on the markets. Look for a rocky start to the trading session, and watch for support at the 50 day MA on the SPX, Russell2K and NASDAQ. Expect the Dow to break the 200 day to the downside. The bias looks negative for the commodities, especially oil.