Main stock market indexes now testing key support levels ($SPX, $COMPX, $DJI, $MID, $RUT)

A review of the major indices shows we are at critical support levels across the board. Specifically, the main stock market indexes are not only at key support of major moving averages, but also testing support of important uptrend lines. Both the S&P 500 and the Dow Jones Industrial Average are toying with support of their intermediate and long-term trendlines (On the charts below, the long-term trend is the bold black line. The intermediate-term trendline is dashed). If the market is to eventually head higher from here, it is likely that stocks will first “undercut” these key support levels before the next move up. Such “undercuts” of obvious support levels are often necessary in order to absorb overhead supply (price resistance) by shaking out the “weak hands.” However, the possibility now exists that the major indices could alternatively set “lower lows,” which could place the broad market in the midst of at least a near-term trend reversal. The annotated daily charts of the main stock market indexes below sum up the current technical situation in the broad market:

In addition to the major indices testing pivotal support levels, it’s notable that leadership stocks have not shown much follow through over the past several weeks, which is obviously cause for concern. As such, we are now exercising caution under current conditions, and are inclined to take a neutral stance with respect to the market (given that we are at the low end of the recent range). For the moment, we are hesitant to take on new positions unless the market can post an “accumulation day” (higher volume gains) and provide some follow-through.

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