Technical Analysis: Dow, S&P Break Down

The Dow and S&P (first two charts below) had clear breaks of head and shoulders tops today. However, both indexes also ended the day at the 50% retracement level (8121 and 861) off the October lows. Combined with the lower NYSE volume on today’s breakdown, the indexes could bounce back to test those broken supports, at 8250-8300 and 875-880. To the downside, 8000 and 850 are next supports. The SOX (second chart), the semiconductor index, had a less convincing breakdown today, but nonetheless ended the day beneath the neckline at 285. The Nasdaq (fourth chart) ended the day not far from critical 1330 support. 1347-1357 and 1365-1370 are resistance. Stochastics remain oversold on the indexes. The equity-only put-call ratio remains a negative; today’s .64 close remains well under the .77-.80 level where recent bounces have started. But the VIX (fifth chart), the options volatility index, showed a healthy level of fear today, so sentiment is at least improving. In short, some longer-term negatives developed today, but shorter-term the picture is mixed, and will likely have much to do with the events of the next few days: the UN arms inspection report on Monday and President Bush’s State of the Union address on Tuesday.

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