Stocks fell for the second day on a troubled economic outlook for Spain. The decline was the second-biggest of the year for the S&P 500 as traders considered Europe’s recurring problems coupled with a Fed that gave little encouragement for any additional stimulus.
Financial, materials and technology sectors turned in the worst performance. At the close, the Dow Jones Industrial Average was down 125 points to 13,075, the S&P 500 fell 14 points to 1,399, and the Nasdaq lost 45 points at 3,068. The NYSE traded 834 million shares, and the Nasdaq crossed 492 million. Breadth was negative with decliners ahead of advancers by over 4-to-1 on the Big Board and Nasdaq.
The Nasdaq, the leader of the charge from mid-December to now, has apparently stalled at 3,130. The index had an opportunity late in the day to recover, and did manage to hold above the support line at 3,040 with a low of 3,052. It also bounced to just above its 20-day moving average at 3,066, but any further decline will penetrate not only those support lines but the near-term uptrend line at about 3,040.
The S&P 500’s chart is similar to the Nasdaq’s, but with lower volatility. Yesterday it held above its first line of support at 1,390 and closed smack on its 20-day moving average. Also like the Nasdaq, its intraday low held at the near-term trendline.
Its biggest challenge is to hold at the all-important support at 1,371, because just under that line is the advancing upward 50-day moving average now at 1,369. It too is under a sell signal from the stochastic.
Conclusion: This is the second test of highs for both indices with further declines looking like a reversal from a double-top. We expect corrections — no market advances forever — and it was predictable that the advance would stall close to the current tops.
Now, however, the support lines will be tested, and they must hold if the overall advance is to resume before the dreaded month of May.
The most important lines of support are the 50-day moving averages. A break under them would put the intermediate uptrend in jeopardy, and trading could evolve into a months-long sideways struggle that could last into the fall.