S&P 500 AND NASDAQ 100 BACK OFF FROM MOVING AVERAGE RESISTANCE -- SHORT-TERM MOVING AVERAGE SIGNALS ARE STILL NEGATIVE

S&P 500 BACKS OFF FROM RESISTANCE ... Last week I wrote about two longer-range moving averages based on Bollinger band values. I showed support at the 20-month (400 day) moving average line and resistance at the 20-week (100-day) average. I stated that the S&P needed to clear the upper line to turn its trend back up again. I also suggested that there was chart resistance ranging from 1489 (the mid-October low) to 1492 (the mid-November peak). The latter number corresponds to the 100-day average. The hourly bars in Chart 2 show the resistance levels more clearly, especially the mid-November peak at 1492. That's the level that the S&P needs to clear to launch a yearend rally. Weakness in financials and small caps prevented an upside breakout on this attempt. As I suggested this morning, it's hard to imagine a yearend market rally without more help from financial stocks.

Chart 1

Chart 2

SHORT-TERM MOVING AVERAGES STILL ON SELL SIGNAL... The two lines on Chart 3 are the 13-day exponential moving average (blue line) and the 34-day EMA (red line). A short-term sell signal was given a month ago when the faster line crossed below the slower line. To improve the market's short-term trend (and launch a yearend rally), the blue line needs to cross back over the red line on Chart 3.

Chart 3

NASDAQ 100 STALLS AT 50-DAY LINE... Another market index to run into moving average resistance is the Nasdaq 100. Chart 4 shows the PowerShares Nasdaq 100 Trust (QQQQ) backing off on Friday from its 50-day moving average. Needess to say, it needs to clear that resistance line to extend its recent bounce.

Chart 4

DOW GENERALS IN RETREAT... The two "Generals" in the Dow Industrial Average aren't providing much leadership. In fact, they're in retreat. Chart 6 shows General Electric falling back below its 200-day line over the last two days. That puts GE dangerously close to its mid-August low. Notice the big drop in its relative strength ratio versus the Dow. General Motors looks even worse. Chart 7 shows GM managing only feeble bounce off its 2007 low. Its relative strength ratio is also in retreat. Of the two, the GE chart may be the more important. GE is one of the biggest stocks in the Dow and the bluest of blue chips. A breakdown in that market bellwether could have wider implications.

Chart 5

Chart 6

UTILITIES HIT NEW HIGH ... One of the few bright spots in the market today was utility stocks. Chart 7 shows the Dow Utilities breaking out to a new all-time high. Its relative strength ratio did the same. That shouldn't come as too much of a surprise since utilities are defensive stocks that benefit from a weaker stock market and rising bond prices. Two other groups defensive groups that continue to hold up relatively well are consumer staples and healthcare.

Chart 7

BEAR FUND STILL IN UPTREND ... Bear funds also gained ground today as the market dropped. Chart 8 is the Short S&P 500 ProShares ETF (SH), which is a mirror image of the daily S&P 500 chart. The SH is bouncing off chart support near 60. That's the level it needs to stay above to keep its short-term uptrend intact.

Chart 8