SHORT-TERM MARKET BOUNCE RUNS INTO SELLING -- MEASURING OVERHEAD RESISTANCE LEVELS

SHORT-TERM BOUNCE RUNS INTO RESISTANCE... My last message showed the three major stock indexes in an oversold condition and trying to bounce from underlying chart support.   So the recent stock rebound wasn't a surprise.  Neither was the size of the rebound.   The combination of overhead resistance and today's selling puts the recent rebound in jeopardy.   That earlier message also suggested that any stock rebound should be viewed within a more negative environment.   That being the case, any potential rally failure has to be taken more seriously.    Two of my favorite ways to measure overhead resistance levels are moving averages and Fibonacci retracement lines.    The three charts below show stocks pulling back from some some of those resistance levels.

Chart 1 shows the Dow Industrials pulling back from their 50-day moving average (blue line).   In addition, the Dow is meeting resistance at its upper Fibonacci retracement line after recovering 62% of its recent selloff.   Fibonacci lines measure retracements of 38%, 50%, and 62% of a prior move and are useful for finding support and resistance levels.   That being the case, this would be a logical spot for the Dow to meet with new selling.

Chart 2 shows the S&P 500 turning back from its 62% Fibonnaci retracement line as well.  During a rebound following a price selloff, that upper Fibonacci line is usually the most difficult to overcome.

QQQ MEETS RESISTANCE AT 50% LINE...The technology-heavy Nasdaq 100 has been the weakest of the three stock indexes and is also pulling back from a couple of overhead resistance levels.   Chart 3 shows the QQQ meeting resistance at the middle Fibonacci line after regaining 50% of its recent decline.   In addition, the QQQ is running into new selling around its 200-day moving average (red line).   That's also a logical spot for it to run into overhead resistance.

BOUNCE OR BOTTOM?   The bigger question at the moment is whether the recent rebound in stocks represents an important bottom, or a short-term rebound within a larger downtrend.   Longer-range charts, and greater weakness in various measures of market breadth, appear to favor the more negative outlook.   If this is just a short-term rebound within a larger downtrend, the overhead resistance lines shown on the three charts may be hard to overcome.