MARKET TRYING TO STABILIZE AT TRENDLINE AND MOVING AVERAGE SUPPORT

DOW AND S&P 500 BOUNCING OFF 50-DAY LINES... The major stock indexes are trying to stabilize at initial moving average and trendline support. The Dow is holding above its 50-day average, while the S&P 500 is bouncing off that support line. I wrote on Friday that I thought the market would attempt to hold at these initial support lines. Otherwise, things would start to look a whole lot worse. That's especially true of the Nasdaq and small cap stock indexes that are testing more important trendline support. So far, those support lines are holding.

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NASDAQ INDEXES TESTING TRENDLINE SUPPORT... Both Nasdaq Indexes (the 100 and the Composite) are bouncing off trendllines extending back to their August bottoms. Since both trendlines have already been tested two times (see arrows), that makes them "valid" (read trustworthy) trendlines. That puts the Nasdaq market in an important test of support. If they're going to attempt a rally, this is where they should do it. The same is true for small cap stocks.

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SMALL CAP INDEXES ALSO TEST SUPPORT LINES... The Russell 2000 Small Cap Index (Chart 5) and the S&P 600 Small Cap Index are also in the process of testing trendline support drawn under the August/October lows. It's important that they hold in this area. I've added an additional support line on the SML bars in Chart 6. That (pink) horizontal line is drawn along its early peak at 301. That's also a very important support point. I suggested last week that the market could still be in a short-term downside correction or a sideways consolidation pattern (like a triangle or rectangle) in preparation for a final run at another new high. If there's another upleg coming, it's important that the Nasdaq and small cap indexes stay over their early October peaks. Another rally attempt will be even more likely if they stay over their (green) trendlines.

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