OptionsVest

Take your pick, the DJIA, SP 500, and Nasdaq all tried to break through the resistance of their 50 day MA last week. They all failed miserably. In addition to that, the Bulls were unable to rustle up any support at the 200 day MA. A good deal of the news we are heading of late is pointing towards a double dip. With the 50 day MA poised to fall below the 200 day MA, institutional investors could be ready to bail out once again.

While technically the stock market looks very weak, it is at times like this that all of us get fooled, so be cautious no matter which direction you think the market is going. If the Bulls can hold the SP 500 above 1,050 and keep the 50 day MA above the 200 day MA this could be a good buying opportunity following a 12% correction. A failure of that could see a fall to the 950 level of a year ago.

JD

The SP 500 joined the DJIA in setting a new, lower low for 2010 by falling to 1050 on Monday. The DJIA set a new low for the year on Friday, and dropped even further today.  While the Nasdaq has not made a new low for the year, yet, it did come crashing through its 200 day MA to join its brethren below this important resistance level. Look for the SP 500 to reach 1025 before it attempts to bounce back towards the strengthening resistance of its 200 day MA. This is beginning to look like a double dip than a correction. If that’s the case, bearish strategies will prevail before this market shows signs of life once again.

JD

The old adage to Sell in May and Go Away proved to be the right move this year as the SP 500 dropped 8% this past month.  In an effort to recover at the end of the month, the SP 500 bounced right back to the resistance of its 200 day MA on Thursday this week. Unfortunately it then headed back south for the holiday weekend on Friday. Next stop is most likely the February end of day lows just below 1060. It is there that we find out if this is just a correction, or if the market is making its first move in a double dip.

JD

When the stock market broke down through its 50 day MA back in February, that level did not provide much resistance on the way back up. This time, events unfolded just a little bit differently. On cue, the SP 500 bounced back from the “Flash Crash” right up to its 50 day MA and then came crashing down right through its 200 day MA.

The only consolation is that stocks did not fall through their February lows of 1060 for the SP 500, 9,900 for the DJIA, 173 for the MNX, and 42.50 for the QQQQ.  In contrast to the SP 500, the Nasdaq is currently being supported by its 200 day MA at 44.50 for the QQQQ.

We will be watching this week to see if the 200 day MA is as resistant as the 50 day was, or if it becomes support for another run up. Technically, the market looks weak, so I would not be surprised if the SP 500 leads the market down, rather than the Nasdaq leading stocks back up. That being said, the SP 500 could just as easily head north to test resistance at 1,100 before heading back down.

JD

In spite of some improvement in the January unemployment report, it looked like the stock market was headed south for the winter on Friday morning. Then just before 2PM, the Nasdaq bounced strongly off of support at the 2100 level. The other major Indexes followed suit and the stock market actually turned in a positive day. This was a turn around the likes of which we have not seen since the SP 500 lead the market by bouncing off of the 666 level on March 6th, 2009.

Quite often, this Hammer candlestick pattern turns out to be a good reversal signal. While this might have been a great opportunity for a Bull Put Spread or a Bull Call Spread, we need to see some confirmation early this week to conclude that this market correction is over. If we do not get that, you should be ready to use the bounce to implement some bearish strategies.

JD