That Was Worse Than Just Starting - And Staying - In the Red

Posted by jbrumley on January 9, 2023 9:40 PM

Stocks briefly made forward progress on Monday. When the buyers had to make the decision to hold those stocks overnight though, the flinched. The S&P 500 and the Dow Jones slipped back into the red for Monday's session, and while the NASDAQ Composite retained enough of its intraday gain to eke out a gain for the day, the scope of its reversal is still troubling. We're clearly not out of the woods yet.

But, first things first.

If it feels like the market's just messing with your head here, you may not be completely crazy. The bulls were going crazy on Friday and again on Monday, pushing all the indices above key technical lines in the sand. When push came to shove late Monday, however, the buyers folded. That allowed the Dow, the NASDAQ, and the S&P 500 to all peel back to (or under) pivotal lines in the sand.

Take a look at the S&P 500 to see what we mean. The index broke above a major ceiling around 3910 early in the day, but by the time the closing bell rang it was back below that level. It's still holding above the converged 20-day (blue) and 100-day (gray) moving average lines around 3880, but one slip on Tuesday could shatter those floors.

The NASDAQ behaved similarly. It neared the 50-day moving average line (purple), but before it could punch through, it was sliding back to close right at its 20-day moving average line at 10,630. That's also squarely in between key horizontal floors and ceilings as well.

The Dow Jones Industrial Average isn't dancing with any important moving averages, but it still made the same basic pattern on Monday. That is, a big bullish start ended with a loss, and a close near the low for the session. The bulls changed their mind in a hurry.

And that's a problem headed into Tuesday's action.

Had stocks simply stagnated on Monday, it might have been a dismissible day... unsurprising following Friday's huge romp. That's not what happened though. Traders acted like they were still bullish (and may have even thought they were). They were too chicken to stick with the stocks they just bought though, tipping their hand in the process. They just made it clear they're not truly committed to their long positions. The bulls would have been better off doing nothing on an intraday basis and waiting for the group effort to kick in on Tuesday. Now they're moving into Tuesday's session on the defensive.

It's not like all hope is lost. As was noted, all of the indexes are above important technical support levels, and could push up and off of those levels from here. It's not the way you want to start to rekindle a budding rally effort though. Again, the bulls just flinched at the worst possible time.