The last four days have been a stark contrast to the first four days of 2006. In fact, this year's peak gain has almost been cut in half, inflicting some heavy technical damage in the process. Based on what we see now, more of this selling could be in store before the potential buyers say 'enough is enough'. But, there is one last line of defense the bulls may be bolstering in the short-term.    

NASDAQ Commentary

As of right now, the NASDAQ intra-day loss of 1.1% brings the week-to-date selloff to a grand total of 40 points....and it's not even been a full two days yet. More than that, the current reading of 2276.98 is just a hair below the 20 day moving average (blue). Now, with a fourth straight day of lower lows and lower highs, we can safely say that the momentum is with the sellers. And perhaps more importantly, we expect the sellers to keep the momentum for at least a few days longer.

As for the reasons why, we've got several, but we'll only focus on two of them here. First and foremost, the CBOE NASDAQ Volatility Index (VXN) has made a firm move higher. The NASDAQ has obliged by moving lower at the same time. Historically, this pattern has been very accurate in flagging shifts in momentum, so we're not going to ignore it now. Second, we're on the verge of a stochastic sell signal. Some of you may recall that our official sell signal is a cross of both stochastic lines back under the 80 'overbought' threshold. The %K line is under it already, while the %D line is not yet. But, barring a small miracle - the %D line should soon fall under 80 as well, completing the signal.

So what was the potential bullish catalyst? There's a support line that extends all the way back to October's bottom. If it had not mirrored the 50 day moving average so closely, we wouldn't give it a second thought. But, seeing as how the NASDAQ's explosive move at the beginning of the year was sparked by support around the 50 day line (and the support line, as we now know), we have to at least acknowledge the possibility. If and when the NASDAQ breaks under that line at 2245, we could see even more downside movement. We'll set a target after that occurs.

In the meantime, resistance is now at the 10 day average, or 2298.

NASDAQ Chart - Daily

S&P 500 Commentary

The S&P's chart looks pretty much like the NASDAQ's, so we'll be brief here (and look at the Dow in a little more detail instead). The SPX is 7.9 points in the hole today (-0.6%), which brings the weekly loss to 12.5 points, so far.  But for the S&P 500, the current reading of 1275.05 is slightly above the 20 day average. So, there's at least a bastion of hope left for the bulls. As with the NASDAQ though, we think the current momentum - and the heavy profits that are no available - will send the market lower before it is able to move higher again.

As you might guess, the reasons are the same. Being stochastically overbought has finally caught up with this index. And, the S&P 500 version of the CBOE Volatility Index is working its way higher as well. The one thing we've added here is a MACD indicator, which is also on the verge of a bearish cross. So overall, the cards are being stacked against the market.

The last line of defense here is that support line which extends back to October. It's currently at 1265, and just a fraction above the 50 day moving average line. As with the NASDAQ though, we don't think it's all that significant. We'll plot support there, though, at 1260. Resistance is now at 1280, or the 10 day average. In the interim, we'll keep an eye on the 20 day line as potential support at 1275. It's held this market up so far today, but the day isn't over yet.

S&P 500 Chart - Daily

Dow Jones Industrial Average Commentary

It's no real surprise to see the Dow play the role of the weakest sister - it's been doing that for months. This time around, that role is evidenced in that the Dow was the first index to fall under its 20 day average. When it approached it again today, it met clear resistance, and sent the blue-chip index back to its current level of 10,836 (where it opened). Anybody remember how the market got excited that the Dow broke above 11,000, toppling the last major barrier? As of yesterday, we have a bearish MACD crossunder, just four days after hitting a new 52-week high of 11,099. Oh yeah, the selling volume is starting to pick up as well. Tuesday's volume was average, but the degree of selling volume - as we've seen over the prior three days - is starting to pick up. So far, that breach of 11,000 has left the bulls with a lot of anguish.

You can see that the Dow is just a few points above the 50 day average, which is sitting at 10,817. Technically it's a support level, but we're looking beyond that....and below that. The 200 day line is at 10,538, which may be a much more realistic landing spot if this selloff gets any stronger. Resistance is at 10,900.

For the day, the Dow's 60 point dip represents a loss of 0.5%. The Industrial Average is 124 points in the red for the week (-1.1%). That's obviously not a bullish start for the return from a three-day weekend. 

Dow Jones Industrial Average - Daily

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