|I touched on the S&P 500 (SPX) just over a week ago, citing the 1,090 level as a potential reversal point for the index. As you can see on the chart, the index bounced off this support level last week and has proceeded to move higher. Because the SPX has now closed above its 10-day and 20-day moving averages, there is a good chance that a short-term bottom has been established. However, the index has a major hurdle to overcome if the longer-term picture is going to turn bullish again.|
|For example, notice that the SPX is coming up on its 50-day moving average (1,134.54). This moving average had acted as ultimate support for the index since March 2003. As a result, the recent break below the 50-day moving average will likely turn this price level into resistance, and the 61.8 percent retracement (1,134) from the March decline comes in at this same price level. This 1,134 level should act as significant resistance for the S&P 500 in the near-term.|
|Graphic provided by: Stockcharts.com.|
|Moving on to the Dow Jones Industrial Average (INDU), you will see that both indexes are in the same boat. The Dow is also approaching its 50-day moving average (10,477.16), while the 61.8 percent retracement level (10,470) from the February -March decline comes in right below it. As a result, the 10,470 to 10,480 range will likely act as significant resistance for the Dow in the near-term. Unless the Dow and S&P 500 can take out resistance at the 10,470-10,480 and 1,134 levels, respectively, their current downtrends will remain intact.|
Figure 2: Down Jones Industrial Average.
|Glen Allen, VA|
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