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Tracking Key Reversals for the Dow and S&P 500

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Semiconductors, the China 25 Fund, the euro, gold, and crude oil are all showing weakness.

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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.


The weekly charts for the Dow and S&P 500 are poised to confirm weekly key reversals.


On Monday, My Fearless Prediction of the Week was that the Dow would trade below 10,000, which it did on Thursday.

The Dow needs to close below last week's close of 10,067 to confirm the weekly key reversal, which occurred three weeks ago. If we get this signal the downside risk is to quarterly support at 6,705. Today's resistance is 10,109 with weekly and annual resistances at 10,341 and 10,379. If we don't confirm the key reversal it's likely that weekly support will form next week to slow the market decline.


Source: Thomson / Reuters

The Dow had its negative moving average crossover with the 21-day simple moving average at 10,407 below the 50-day at 10,425. Another key is that both are declining.

The S&P 500 needs to close below last week's close at 1073 to confirm its weekly key reversal. SPX needs a weekly close below my annual support at 1014 to target quarterly support at 682. Today's resistance is 1073.


Source: Thomson / Reuters

We need two months of lower closes to confirm the Monday Key Reversals
for the Dow, S&P 500, the NASDAQ, and Dow Transports.

All other major averages have confirmed weekly key reversals.

The Philadelphia Semiconductor Index (SOX) is the number one stock market drag, down 13.2% year-to-date. The risk is to my semiannual support at 271.90.


Source: Thomson / Reuters

The China 25 Fund (FXI) was touted as a 2010 leader by Wall Street and it's down 10% year-to-date. Weekly closes below my annual pivot at 39.25 indicates continued downside risk.


Source: Thomson / Reuters

The daily chart for the euro is in a near free fall with this week's support at 1.3658. It was back on Thanksgiving when I projected that euro gains above 1.50 wouldn't be sustained. The focus is sovereign debt issues in Greece, Spain, and Portugal just for starters. (See also, Two Ways to Play: Greece's Spreading Debt Problems)


Source: Thomson / Reuters

The stronger dollar replaces gold as currency of last resort. This week's support is $1043 and being long gold has been a crowded trade and margin calls have forced position liquidations.


Source: Thomson / Reuters

As long as weekly closes for crude oil are below my annual pivot at $77.05 the risk is to my quarterly support at $67.22. Weakness in oil is caused by the unwinding of speculative positions and on the notion that the global recovery is not as strong as Wall Street proclaims.

The yield on the 10-Year is declining as risk aversion rules
in front of next week's $81 billion in auctions. My semiannual pivot is 3.675 with monthly resistance at 3.504.

The Regional Banking Index (BKX), which was up 8.2% year-to-date yesterday morning got hit hard and is now only up 3.5% so far in 2010. BKX shifts to neutral on a weekly close below $45.33. My semiannual support is $40.76.


Source: Thomson / Reuters

Ten of 11 sectors were overvalued at the 2010 highs and now only two are overvalued.
This was a major reason why I said that stocks were vulnerable and to sell strength.





Send me your comments and questions to Rsuttmeier@Gmail.com.
No positions in stocks mentioned.

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