Technical analysis involves moving averages, retracement levels, well-defined zones of historical support/resistance ... in other words, lines in the proverbial sand that often help make sense of the various market machinations. It's after 4:00 and we've all been saved by the bell, if a little worse for wear. But heck, a 9% drop like the Shanghai Composite endured would have taken the Dow Industrials (INDU) south of the 11,500 mark. As Sarah pointed out moments ago, the Dow's drop on this late-winter Tuesday will likely end up being no big deal.
That said, let's take a quick look at some technical trickery. The NASDAQ Composite (COMP) gave back nearly 97 points today and closed below its 10-week and 20-week moving averages. These trendlines had worked in tandem to support the tech-rich index since mid-August. The S&P 500 Index (SPX) violated its respective 10-week and 20-week trendlines as well, and closed below the 1,400 mark for the first time since December 1. The S&P 100 Index ended the day at its worst level since early November and broke free of a stifling trading range that had been in place since the start of 2007. And the Dow also breached its 10-week and 20-week trendlines, testing the 12,200 mark for the first time in nearly three months.
But long-term graphs of the indexes all look relatively healthy. Long-term uptrends look unscathed, monthly trendline resistance holds firm. This is further evidence that today's decline, while certainly surprising and moderately painful, may wind up as just an ugly blip on the radar.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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