Following through on the bullishness that materialized on Friday of last week, the market logged a third consecutive daily win on Tuesday. The win, however, is tainted. Stocks started to struggle right at major technical resistance we all should have seen coming.
Take the S&P 500 as an example. The index finally fought its way above the 20-day moving average line (blue) at 4348, but once the 100-day line (gray) at 4400 was approached, the buyers started to peter out. The index still closed with a gain, and closed above its 20-day moving average. But, it also gave up about half of its intraday gain.
The NASDAQ Composite’s daily chart looks quite similar. All it took was a brush of the 100-day (gray) and 50-day (purple) moving average lines at 13,576 and 13,654 (respectively) to put the buyers back on their heels.
It’s not necessarily the end of the world. More specifically, it’s not a guaranteed hint that the market will now start a prolonged selloff. The S&P 500’s as well as the NASDAQ’s bullish volume and advancers are both still growing. Meanwhile, the S&P 500’s and the NASDAQ’s bearish volume and decliners are declining. The undertow is still net-bullish.
Rather, this is just a test… a test right where we’d expect to see one materialize. The market could still pass this test. It just needs some time to think it through.
With all of that being said, should the market start to peel back from here, it’s clear where the next test for the bears will be. That’s the S&P 500’s 200-day moving average line (green) at 4213, where it made a horizontal floor (purple, dashed) last week. With two different floors now overlapping, that’ll be one tough floor to crack.
Conversely, if the S&P 500 does manage to fight its way above the about-to-converge-at-4410 100-day and 50-day moving average lines, the prospective floor becomes irrelevant. That will very likely jump-start the usual year-end bullishness we know is brewing. The NASDAQ Composite’s equivalent ceiling is at 13,888. We’ll talk about why in this weekend’s Weekly Market Outlook.