NASDAQ COMMENTARY

The NASDAQ's plight with being caught between a rock and a hard place is keeping things interesting to say the least. The hard place is the 10 day moving average, and the rock is the 50 day line. Over the last week or so, the composite had been getting squeezed, as the two converged. Although the lows over the last three days have all been just under that 50 day average, we've yet to close under it. Conversely, we've bumped into the 10 day line two of the last three sessions, but haven't closed above it since the 3rd. We're up for the day, and for the week, but we're still not prepared to say that the downtrend we've seen over the last three weeks has been broken.

Why all the buying interest now? It was time. Just look at the stochastics chart. We've been oversold for a while, and the euphoria of June and July can keep investors and traders in that mode for a while. That creates a 'buy on the dip' mentality, and what better time to buy than when we see some support at the 50 day average line.

The question is, can we break back above the key short-term lines....the 10 and 20 day averages? We took a shot today, but so far, we can't stay above it. On the flipside, we actually saw a pretty sour opening and then a trip to a lower low for the NASDAQ. That low outlines support around 2130, above and beyond the 50 day line at 2135. Final resistance is at 2073, where the 20 day line is. We'll have to see that line breached before we even think about switching gears and being bullish.

NASDAQ CHART - DAILY

S&P 500 COMMENTARY

Unlike the NASDAQ, the S&P 500 did close under its 50 day line yesterday, for the first time since May. Today's a struggle too, so we may get the confirming intermediate-term sell signal by 4 PM EST.....that would be a close under yesterday's close of 1217.59. But, as always, there's going to be some sort of opposition to the bigger trend. As for the reason why the bulls are interested again now, once again, take a look at the stochastics chart. Oversold is oversold, and represents bargains to at least a few people.

In the case of the SPX, though, there is a little more rationale behind this strength. This large-cap index ran into an intermediate-term straight-line support level (dashed) at 1215. This line hasn't been perfect support (see April and May), but it has tagged several lows between April's low and now.

But the problems are still the same - resistance at the 10 and 20 day averages, at 1223 and 1225, respectively. We've hit a wall at the 10 day line three times over the last for days, and on the other day (Monday) we pulled back and closed well under the 10 day line. Plus, the bears certainly have the momentum. Even though the buyers are fighting a good fight, we just don't think it will be enough to keep the S&P 500 afloat. If and when the support at 1215 is broken, the next potential landing point is the 200 day line at 1195. That's 25 points - or 2.0 percent - below current levels. However, that type of retracement wouldn't be unusual.

S&P 500 CHART - DAILY

DOW JONES INDUSTRIAL AVERAGE COMMENTARY

The tone of each of our analysis is getting progressively worse. The NASDAQ is finding some support at the 50 day line, but the S&P 500 isn't finding quite as much. The Dow Jones Industrial Average is finding none at its 50 day line. In fact, the Dow isn't even finding support at the 200 day line - it closed under it for the second time in six days on Tuesday. Barring a hue recovery between now and the end of trading, it will make another close under the 200 day average today. Needless to say, this isn't exactly an encouraging sign for owners of these blue-chips.

Like all the other indexes, the Dow's 10 day average at 10,553 is the sore spot. Each time it's approached, it sends the index lower. The problem for the Dow is particularly bearish, as the 10 day line is on the verge of falling under the 50 and 200 day lines. The convergence of all of these potential resistance lines augments their resistance qualities. Plus, it sends a signal out to everyone that the short-term trend has just turned into a long-term one....a bearish one. Add in the fact that the Dow has been headed lower for almost a month, and it becomes clear the bears are in control.

As for support, there are no moving averages left, so we'll apply the same straight-line support we discussed with the S&P 500. It's currently at 10,281, and rising slightly (see dashed line). That would be a 2.3 percent dip, which again, isn't out of the ordinary.

DOW JONES INDUSTRIAL AVERAGE CHART - DAILY

BOTTOM LINE

While today may just seem like another lazy Wednesday, we're actually at a major crossroad in the market - especially the Dow. Where we close today and for the rest of the week (not where we are now) will speak volumes about how traders and investors see the market.....are stocks bargains, or are they a liability? Keep an eye on the 50 day lines, as that will be the concrete clue we need in trying to answer that question. It may take a couple of days to get that answer though. It should be clear from our thoughts that we expect more weakness, with the 10 day lines being the only trump card to that outlook.

Price Headley is the founder and chief analyst of BigTrends.com.