Wednesday’s Selling Tests Key Technical Floors

The possibility’s been on the radar for a few days. Now it’s a reality. The market’s key indexes are below their short-term dividing lines, and testing their next support levels. If these fail as well, it opens the door to even more selling.

Take a look at the daily chart of the NASDAQ Composite to see one of these tests. The composite’s low of 13,469 just brushed the 100-day moving average line (gray).

Clearly it didn’t move under it. And, that’s means something. It means someone out there knows there’s reason to stop selling there… at least for the time being. It doesn’t mean, however, the selling won’t be rekindled. The best thing going for the market here is the sheer depth of Wednesday’s selling -- it sets the stage for a quick rebound. Even so, that doesn’t mean that rebound will last. It may just be a reflexive move, just as quickly reversed by a brush of the 20-day moving average line (blue) at 13,796. That bullish test could restart the selling and then drive the NASDAQ below its 100-day line.

The Dow Jones Industrial Average is at the brink of a major breakdown as well.

You may recall the Dow’s been getting squeezed toward the tip of a converging wedge pattern since this time last year; both the floor and the ceiling are quite well defined. As the chart shows us, though, the lower boundary of this wedge shape is under some serious pressure. One more rough day could do the trick.

Indeed, notice the Dow’s 20-day moving average line (blue) is also about to fall under the wedge shape’s support side. That would be the first time this has happened since the wedge started to form, underscoring just how vulnerable the market is at this time.

It could end up being irrelevant. The market may well end up bouncing all the way back from this stumble and sidestep slipping into a more serious selloff.

Just don’t jump the gun. The bulls are on the defensive here. It’s the bears that are having their way. A little more of this, and it’s game-over. Meanwhile, the market’s already in what’s usually a bearish time of year.

In any case, we just wanted you to have a heads up, and some perspective on what just happened.