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Dec. 4, 2012, 1:38 p.m. EST

Bulls, bears make case while surfing fiscal cliff

Focus: Metals & Mining, XME, QIHU, SMTC, MLM, HAE, GPOR

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By Michael Ashbaugh, MarketWatch

Editor’s Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column, including 100 technical stock picks every month, click here.

CINCINNATI (MarketWatch) — Though market cross currents are in play — courtesy of the fiscal-cliff debate — the recent price action remains technical.

Most notably, the Standard & Poor’s 500 Index has stalled at well-defined resistance — S&P 1,422 — and this area remains a notable bull/bear battleground. The charts below add color:

Before detailing the U.S. markets’ wider view, the S&P 500’s hourly chart highlights the past two weeks.

As illustrated, the S&P has topped at 1,423, matching major resistance at the April peak of 1,422.

From current levels, initial support rests at 1,410, while its next notable floor holds around the 1,391 mark, roughly matching the 200-day moving average.

Meanwhile, the Dow industrials’ near-term backdrop is similar, though slightly weaker.

Consider that the blue-chip benchmark’s 200-day moving average currently holds at 12,997, and the index has edged nominally lower.

On further weakness, initial support holds around the 12,900 mark, and is followed by a deeper floor at 12,810.

And the Nasdaq Composite’s near-term backdrop remains jagged, though technical.

With Tuesday’s downturn, the index has edged under the 3,000 mark, and is retesting its 200-day moving average, currently 2,987.

Looking ahead, the 200-day marks a notable inflection point, and is followed by deeper support at the October low, around 2,960.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq is compressing between two widely-tracked trending indicators. Specifically:

  • The 50-day moving average, defining the intermediate-term trend, currently 3,016.

  • The 200-day moving average, defining the longer-term trend, currently 2,987.

More plainly, the two trends have clashed, and the area that cracks first could trigger a meaningful technical move. Consider the Nasdaq’s recent violations of both the 50- and 200-day moving averages.

Moving to the Dow, its six-month backdrop remains weaker.

As detailed previously, its 200-day moving average currently holds at 12,997 — matching the 13,000 mark — and the index continues to flirt with this area.

Viewed in isolation, this area marks a useful bull/bear gauge. The bear case strengthens under the 13,000 mark, and vice versa.

And the S&P 500’s backdrop highlights what may be the most significant technical hurdle.

Again, the S&P has topped this week at 1,423 — matching resistance at the April peak and the 50-day moving average — and this area has initially drawn sellers.

The bigger picture

Though cross currents are in play — courtesy of the fiscal-cliff debate — the market price action remains technical.

Consider the bull/bear debate.

The bear case

Starting with the bear case, the Dow Jones Industrial Average has struggled with its 200-day moving average, edging slightly lower this week.

As always, the 200-day is a widely-tracked longer-term trending indicator, with a posture lower signaling a downtrend.

Meanwhile, the Nasdaq is flirting with its 200-day moving average, currently 2,987, in Tuesday’s early action.

A violation of this area, combined with the Dow’s shaky backdrop, would strengthen the bear case.

The bull case

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