Technical Analysis: Dow, S&P Break Support

The Dow and S&P (first two charts below) had clear closes below the falling trendlines that have acted as support the last two weeks. That opens the window for a big move lower, if sellers are so inclined, but so far there hasn’t been much volume on the downside, and even less on the upside. The Dow could find support at 7725-7750 and 7650, but it is looking more and more like major support at 7200-7500 will need to be hit before we see a sustainable bounce. Resistance is 7810 and 7900. The S&P, meanwhile, does not have much in the way of support until 800 and 775. Resistance is 823 and 835. The Nasdaq (third chart) is the only index showing any respect for support. If 1263-1275 goes, there is a big gap between 1220 and 1260 begging to be filled. The one plus for techs is that Max-Pain – the level where most options expire worthless – is above 24 on the QQQ, the Nasdaq 100 tracking stock, so that could support the index for another week or so. 1301 should be solid resistance. The equity-only put-call ratio came in at .65 today, excluding 16,000 2005 QQQ puts (what small investor has a spare $33 million lying around, anyway?). That reading is still showing too much complacency. Speaking of which, both the Investors Intelligence and American Association of Individual Investors weekly sentiment surveys show a high number of analysts and traders who view this down move as a correction. That level of consensus increases the chance of new lows.

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