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March 27, 2018, 5:01 p.m. EDT

The stock market is on the brink of an absolute breakdown

The Nasdaq on Tuesday nearly erased all of Monday’s powerful 3.3%, tech-driven rally

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By Mark DeCambre, MarketWatch


Everett Collection
Is a bearish breakdown in the offing?

The stock market surged on Monday but relinquished nearly all of those gains on Tuesday. That is not a good sign.

U.S. stocks already are coming off the biggest weekly decline in more than two years, and the aftermath of that drop has market technicians warning that major indexes are on the verge of a full-fledged, technical breakdown.

“The extent of the deterioration in equities is very much a concern given the combination of near-term technical damage, along with the decline in longer-term momentum after having reached record overbought conditions into late January,” wrote Mark Newton, technical analyst at Newton Advisors, in a Monday research note.

Here are some levels that the market is trying to defend or retake after last week’s withering action:

S&P 500 200-day moving average

The S&P 500 index /zigman2/quotes/210599714/realtime SPX +2.47% ended Friday’s session clinging perilously above its 200-day moving average, which was at 2,587.21 (as of Tuesday). The broad-market benchmark, ultimately, ended at 2,585.38—an encouraging sign for market bulls. Market watchers tend to follow moving averages to help determine if bullish or bearish trends are intact. The chart below shows the 200-day MA (in green) presently at 2,586.16, and the pink line signifying its 50-day MA, according to FactSet data:


Source: FactSet

The Nasdaq’s 100-day moving average

The technology laden Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +3.33% finished Friday’s session firmly below its 100-day moving average, another mid- to long-term line in the sand that chart watchers pay attention to (see chart below, with the 100-day MA in red). On Tuesday, it dropped below that mark again at 7,089.84:


Source: FactSet

Dow Theory sell signal

djt_dow_0326

A Dow Theory sell signal was close to forming. According to MarketWatch columnist Mark Hulbert there are a number of steps, but as of Friday, the market had just to see the Dow Jones Transportation Average /zigman2/quotes/210598063/delayed DJT +1.90% close below its Feb. 9 low of 10,136.61 to trigger that sell signal after the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.76% on Friday closed below its February low. On Monday, the transports closed up 2.1% at 10,373.21, but ended down 1.9% on Tuesday at 10,181.42.

Check out: Opinion: A Dow Theory ‘sell’ signal could happen any day now

/zigman2/quotes/210599714/realtime
US : S&P US
4,158.24
+100.40 +2.47%
Volume: 2.14B
May 27, 2022 4:07p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
12,131.13
+390.48 +3.33%
Volume: 4.19M
May 27, 2022 4:07p
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/zigman2/quotes/210598063/delayed
US : Dow Jones Indices
14,410.81
+269.14 +1.90%
Volume: 74.73M
May 27, 2022 3:52p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
33,212.96
+575.77 +1.76%
Volume: 327.63M
May 27, 2022 4:07p
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