Courtesy of John Nyaradi.
Momentum wanes and S&P 500 (NYSEARCA:SPY) has a Friday crash close
In a volatile week, U.S. stock indexes gyrated wildly in response to events in Europe, the Federal Reserve’s “Operation Twist” and ongoing economic reports indicating a global financial and economic slowdown.
In response to this action, several major technical indicators developed new bearish patterns after the recent run up that was generated in hopes of more quantitative easing by the Federal Reserve.
Friday’s Crash Close
chart courtesy of StockCharts.com
Major U.S. indexes posted small gains on Friday, June 22nd, however, a look at the short term chart shows significant weakness going into the close.
In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the index took a major decline in the last few minutes of trade, with RSI and MACD turning over sharply. Apparently nobody wanted to be “long” going into the weekend during today’s turbulent economic times.
Stock Market Momentum Wanes
chart courtesy of StockCharts.com
In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the index rallied sharply in June, powered by hope for more quantitative easing to be announced at last week’s Federal Reserve meeting. However, the Fed disappointed with its modest extension of “Operation Twist” and markets reacted strongly with Thursday’s sell off.
Now we see declining momentum in most indicators, with RSI and MACD both turning down.
On a longer term basis, we see the 50 day moving average rolling over to indicate an intermediate downturn as the index was unable to hold the 50 day moving average and starts to converge with the 200 day in a potential death cross formation somewhere in the near future.
However, significant support rests at the 1310 level as indicated by the horizontal red line and more support is found at the 200 day moving average at 1295, so these will be key levels to watch over the next few days and weeks. A break below these levels would heighten the probability for more downside action ahead.
A similar picture emerges for the Dow Jones Industrial Average (NYSEARCA:DIA) which finds itself unable to reclaim recent highs and has also lost its 50 day moving average.
chart courtesy of StockCharts.com
A quick glance at the chart of the Dow Jones Industrial Average (NYSEARCA:DIA) shows us that momentum also wanes here as RSI and MACD decline and the 50 day moving average starts to roll over. Significant support levels rest at 12,500 and 12,350 and so these will be the critical levels to watch.
Bottom line: The recent run up seen since early June appears to have come to an end. Disappointed by the lack of new quantitative easing by the Federal Reserve and ongoing worry over the crisis in Europe, markets have taken a significant change of direction in recent days. Major support is now just 2-3% below current levels and so markets now reach a critical turning point as we come to the end of the Second Quarter.
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