MAJOR AVERAGES CONTINUE TO DETERIORATE - 50-DAY MOVING AVERAGES PENETRATED

MAJOR AVERAGES SHORT TERM OUTLOOK CONTINUES TO WEAKEN... Last week (see Market Messages dated Jan. 17th and 16th), we mentioned the possibility of further market weakness due to the major averages reaching trading range extremes and the failed attempts to penetrate 200-day resistance levels. Today's market weakness provides further evidence that we may be in store for additional downward pressures. The Dow (INDU) (chart #1) has put in place a lower high (see descending line) and is penetrating its 50-day moving average intra-day. A close below this level would be bearish and would open the door for a retest of the November/December lows near 8,250 (see line). The daily MACD (below chart) is rolling into negative territory and the Stochastic lines have yet to alleviate their overbought condition, both of which are negative signs. The S&P 500 (SPX) (chart #2) and the Nasdaq Composite (COMP) (chart #3) both bear striking resemblance to the Dow (INDU). In spite of today's weakness in the averages, there is a pocket of strength in a few telecom stocks. Alcatel (ALA), and Nortel (NT) are up over 4% intra-day extending their recent rallies that began earlier this month. (See Market Messages dated Jan. 14th - Telecoms Dominate N.Y.S.E Most Actives List)

Chart 1

Chart 2

Chart 3