Indices Flashing Major Sell Signals


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In Monday's Daily Market Outlook , we examined charts of the S&P 500 and Nasdaq - two indices with a focused nature. The S&P 500 is generally considered to be the "best" 500 companies, while the Nasdaq is heavily weighted toward the technology sector. I concluded that it was likely that Friday's rally resulted from the expiration of April options and was therefore a forced short-covering rally that could quickly turn into a dead cat bounce.

Today, we'll look at charts of two of the broadest-based indices, the NYSE Composite, which is composed of all common stocks traded on the New York Stock Exchange, and the Russell 3000, which measures the performance of the largest 3,000 U.S. companies representing about 98% of all stocks traded in the United States.

NYSE Composite Chart

Trade of the Day Chart Key

The NYSE Composite chart shows a clear break of the 20- and 50-day moving averages following a strong sell signal from our internal indicator, the Collins-Bollinger Reversal (CBR). This coupled with a Moving Average Convergence/Divergence (MACD) sell signal (lower right) indicates that Friday's rally was not sustained.

The only remaining bit of evidence to fully wrap it up for the bears would be a close under the green support line at about 8,220. A close under that line would confirm a breakdown from a double-top with a trading objective of about 7,900.

Russell 3000 Chart

Trade of the Day Chart Key

The Russell 3000 chart is similar to the NYSE, but shows twin CBR sell signals (strong bearish indicators). However, we require a close under the green support line at 770 to fully confirm a breakdown.

Neither chart supports the bulls, and both charts, as well as the ones of the S&P 500 and Nasdaq that we examined yesterday , closed below their respective 20- and 50-day moving averages.

Conclusion: The stock market is headed lower with objectives close to their respective 200-day moving averages (red solid line.)

Investors should remain on the defensive, selling into rallies, and traders should actively pursue bearish strategies. For one stock to sell or short, see the Trade of the Day .

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this week's economic reports due out, click here .

If you have questions or comments for Sam Collins, please e-mail him at .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

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Sam Collins

Sam Collins

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