STOCK INDEXES STILL TESTING 200-DAY AVERAGES

NYSE AND S&P 500 BOUNCE OFF MOVING AVERAGE... Despite Monday's market selloff, several important stock indexes are still holding above their 200-day moving averages. Chart 1 shows the S&P 500 once again bouncing off its 200-day line at 1080. Its daily stochastic lines are starting to recover from oversold territory under 20. Its daily MACD lines are still negative, but the spread is narrowing. Chart 2 shows the NYSE Composite Index also bouncing off its 200-day average. It's daily oscillators are also in oversold territory. In other words, yesterday's selloff didn't change all that much. In my view, the market is still undergoing an important test of long-term support. And that test still hasn't been resolved.

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BIOTECHS, CYCLICALS, AND UTILITIES ARE ALSO TESTING 200-DAY LINES... Last week I showed the Morgan Stanley Cyclicals Index testing its 200-day average. Relative weakness in these economically-sensitive stocks is an early warning that the market is getting worried about the strength of the economy in the face of rising interest rates. That's why the current test is so important. Another recent casualty of rising rates has been utilities. Chart 4 shows the Dow Utility Index bouncing off its 200-day line today. Biotech stocks are also testing major moving average support as shown in Chart 5. The combination of a short-term oversold market condition, the presence of 200-day moving averages, a bounce in global stocks, and a pullback in oil prices are all contributing to a relief rally today. That may not mean too much in the big picture, but it may be enough to keep these stock indexes over their 200-day averages.

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