MARKET STAGES LATE COMEBACK -- SEVERAL INDEXES END ON TOP OF 200-DAY AVERAGES

DOW AND NYSE INDEXES CLOSE ABOVE 200-DAY LINES ... An afternoon comeback avoided a serious market breakdown. Chart 1 shows the Dow Industrials closing 8 points higher after heavy losses this morning. More importantly, the Dow closed on top of its 200-day moving average. Chart 2 shows the NYSE Composite Index doing the same. Although the NYSE recovered most of its losses, it still closed in the red (as did small caps and the Nasdaq). Even so, today's heavy trading volume has the look of a short-term upside reversal. Coupled with short-term oversold readings, that may be enough to stabilize the market through the balance of the week. Several other group indexes (like the XLB and the XLE) that were trading below their 200-day averages this morning closed back over them this afternoon. Chart 3 shows the Energy Select SPDR (XLE) closing higher on heavy volume. That helped turn what could have been a very bearish day into a more positive one. It seems clear that market is at a crucial chart juncture with so many stock indexes trading around their 200-day moving averages. The market bent today, but didn't break. I wrote this morning that Friday was the most important day of the week. A lot will depend on whether tomorrow's trading can build on today's late bounce. We'll get any early clue by how foreign markets react to the U.S. afternoon rebound (while they were closed).

Chart 1

Chart 2

Chart 3

S&P 500 IN SHORT-TERM OVERSOLD CONDITION ... The daily bars in Chart 4 show the S&P 500 closing 1.78 points higher but just below its 200-day average. I'd have to rate the day's trading, however, as more positive than negative. The 9-day RSI line shows a slight "positive divergence" (see up arrow) which suggests that the market is entitled to an oversold bounce. The hourly bars in Chart 5 also show a short-term oversold condition. The first overhead resistance is shown at 1272 (Wednesday's intra-day high). A failed attempt to take the market lower is usually followed by an attempt to take it higher. A close over 1272 would help stabilize the market's short-term trend and would could give today's late bounce a bit more staying power. A close over its June high at 1290, however, is needed to take the market out of danger.

Chart 4

Chart 5