S&P 500, Nasdaq, Russell, Dow Jones Index: The Big Four U.S. Equity Checkup

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December 3, 2012 1:47pm NASDAQ:QQQ NYSE:DIA

Corey Rosenbloom: There’s an interesting level we should be watching on the S&P 500 (INDEXSP:.INX), NASDAQ (INDEXNASDAQ:.IXIC), and Russell Indexes (INDEXRUSSELL:RUT) but the Dow Jones (INDEXDJX:.DJI) hasn’t cleared above it yet.

Let’s look at these main equity indexes as they struggle to stay above the 50 day EMA – we’ll also be on guard for a “repeat scenario” from June.

Here’s the S&P 500:

Let’s start with the basics and build from there.

In November price broke forcefully under the rising 200d SMA only to form a V-Spike reversal that took the index back above not only the 200d SMA (locking in a Bear Trap), but the 20 then 50 day EMAs.

The focal point  now is how price behaves ABOVE the 50d EMA – either it sustains support above and continues through the visual “Open Air” toward 1,430 then the 1,460 level, or else we see a “Repeat Scenario” where price behaves similar to the June 2012 pattern (a reversal back under the 50 EMA to trap the bulls).

These scenarios will form the basis for our game-planning (trade planning) strategies on the intraday and short-term levels.

The key inflection point for the S&P 500 remains at 1,410 as I highlighted from the November 27th update.

The NASDAQ reveals a similar picture:

I think 3,000 is the simple reference/inflection level but technically it is 2,993 (50d EMA) then 2,987 (200d SMA).

A break-back under 3,000 then 2,990 suggests that we should be playing the “Repeat Scenario” Thesis of a breakdown possibility similar to that of mid-June.

The “Bullish” thesis instead continues as long as the index is above (preferably) the 3,000 level.

The Russell 2000 small cap index aligns with the S&P 500 and NASDAQ:

June 2012 saw a similar big-burst day above the falling 50d EMA (the rcent burst was an upside gap) but June failed to hold initially above the 770 level.

The focal point here aligns near 810 with the 50d EMA resting at 813 while the rising 20d EMA now trades at 808, quickly approaching 810.

Again, the scenario planning calls for a “Repeat Situation” or “Continued Bullish Breakthrough” tradable outcome depending on what happens this week.

The Black Sheep of the US Equity Indexes currently is the Dow Jones which didn’t break the 50d EMA:

The Dow Jones reminds us why it is very important to look at other indexes, even if we’re solely S&P 500 or Russell traders.

At the moment, the chart picture from the S&P 500, NASDAQ, and Russell suggests clear skies ahead from a successful breakout situation into Open Air.

However, the Dow Jones shows a market retracing up into a known resistance target with reversal candles forming into the EMA resistance.

In other words, the Dow Jones suggests caution while the other indexes hint at a breakout buy.

To be fair, a breakout above the 50d EMA at 13,060 would confirm a likely breakout and suggest real-time bullish plays (or a bullish trading bias) from there.

But until we see that breakout impulse, it may be best to be cautious and apply similar caution to the other indexes until we see a resolution from this key level.

Remember, June provided a similar upside breakout AFTER a similar V-Spike reversal and recovery back above the 200d SMA.

Take a moment and study the June scenario and put these current charts in context for your trade-planning.

Written By Corey Rosenbloom, CMT From Afraid To Trade

My name is Corey Rosenbloom, CMT (Chartered Market Technician)  trader,educator, analyst, and I am excited to share with you my  experiences studying and trading the markets and to hear from you  regarding your experiences, challenges, and frustrations, and successes.  My goal is to create a community dedicated to reaching out to those who  have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep  us from achieving our highest potential.

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