Let’s face it — this year has not been a very good one for the large-cap index investor. The three major indices have not made any progress upward since their respective tops early in 2004. However, all three have enjoyed healthy rallies off of their August lows — but those rallies ran into a bit of difficulty this week. Let’s take a look at the charts for the past year:
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The Dow’s rally really stalled early in September, as the most recent advance wasn’t able to find its way back up to the current downtrend line. This week’s dip sent the index back below its 50-day moving average. |
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The S&P 500 has been the strongest of the 3 major indices (ok, maybe the ‘least weak’). Last week it managed to break through its downtrend line, but that move seems to have failed by the end of this week. The index remains above its 200-day MA. |
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The big Nasdaq rally off the August lows appears to have been turned back at the confluence of its downtrend line and the 200-day MA. And unlike the Dow and the S&P so far, the Nasdaq’s 200-day MA has rolled over and begun to make its way downward. |
So what happens from here? All we can do is wait and watch — the markets could pause here and try to gather strength for another assault on the upper edge of the trading range, or they could falter and fall for a retest of the lower part of the range. One thing to keep in mind: the longer a trendline is in place and the more times it is tested unsuccessfully, the more significant it becomes — and the more significant it is when finally broken.
Charts courtesy of StockCharts.com
Update: Modified opening line to read ‘large-cap’ for clarification.