Last week the S&P cash tested and held its 200 day moving average, the Nasdaq 100 futures failed to hold their 200 day moving average and closed below it while the Nasdaq 100 cash closed on the low of the week right at its 200 day m.a., and the Dow Industrials are about 275 points away from testing their 200 day moving average. The question is...who is right? The Nasdaq is the weak one, the Dow Industrials are the strong one and the S&P is right in the middle. Who is the leader? The market always has a leader but the trick is identifying that leader. This recent sell off was led by the Nasdaq, but the rally over the past 2 years has been led by the Dow. So for right now I am sticking with the one that has been right for 2 years and not for 2 months and that is the Dow.
Until the Dow violates and closes below its 200 day moving average or has a Dow Theory confirmation reversing the primary trend to bearish, this recent sell off is nothing more than a correction.
Although I am sticking with the Dow as the leader the bulls desperately need the Nasdaq 100 futures need to get back above their 200 day moving average or you could see the S&P cash dip back down to test its 200 day moving average which could shake out a lot of the longs and thus force the Dow to test theirs.
This week I believe that a lot of traders are looking for consolidation or an oversold bounce. My eyes will be on the Nasdaq to help me determine whether or not this bounce or consolidation will occur. If the Nasdaq can start the week off with a rally then you should see buyers coming in and taking the other markets higher across the board. If the Nasdaq cannot stay positive from last weeks close then you could will see a retest of the 200 day moving in the S&P cash and possibly a violation. This should then force a true test of the market and we will see if the Dow can hold its 200 day moving average or if we have a Dow Theory confirmation. This will be the deciding factor for the market to move forward in which ever direction that may be.
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