S&P 500 BACKS OFF FROM MOVING AVERAGE AND TRENDLINE RESISTANCE -- TNX NEARS POTENTIAL SUPPORT AT 200-DAY LINE

S&P 500 REMAINS IN MAJOR DOWNTREND...Although stocks have experienced a counter-trend rally over the last three months, their major trend is still down.   One way to measure that is by looking at where moving averages and trendlines are located.    Chart 1 show the S&P 500 meeting resistance near its 200-day moving average (red line) as stocks suffered their first weekly loss in the new year.   The chart also shows the SPX trying to regain its 50-day average (blue line) at week's end.   One notable fact is that the 50-day line is drawing closer to the 200-day line.   The blue line fell below the red line nearly a year ago which is one definition of a major downtrend.  A few things need to happen to improve the long term trend for the SPX.   One is a decisive close above its 200-day line and its December high.  Another is the blue 50-day line crossing above the red 200-day line.   A third is a move above the falling purple line.

TRENDLINE RESISTANCE...The purple line also shows the SPX also backing off from a major downtrend line extending back to the start of last year.   That longer-term trendline can be seen more clearly in Chart 2.   The SPX would need to clear that major resistance line in decisive fashion to signal an important trend change to the upside.   At the moment, however, the market's major downtrend is still in effect.   There are other ways to study moving average lines.

S&P PERCENT OF STOCKS ABOVE MOVING AVERAGES... Chart 3 shows the percent of SPX stocks trading above their 200-day lines in an uptrend but backing off sharply this week from its late November peak.   Its current reading shows 60% of its stocks in moving average uptrends which is somewhat encouraging.   That red line is worth watching because a drop below its December low near 47% would signal a rally failure.

SPX % STOCKS ABOVE 50-DAY LINES...Chart 4 shows the percent of SPX stocks above their 50-day moving average lines.   The blue line has backed off from resistance at its  August and November peaks but remains in an uptrend.  Readings above 90% usually signal an overbought market.  The blue line would need to fall below its December low at 44% to signal a likely market downturn.   It would then have to fall below 20% to signal an oversold market.

TEN YEAR TREASURY YIELD TESTS 200-DAY AVERAGE... Bond yields have been dropping over the last three months while stock prices have rallied.   That makes sense considering that the direction of interest rates has an impact on stock direction.   Chart 5, however, shows the 10-Year Treasury yield dropping to a four-month low but nearing its 200-day moving average.   It remains to be seen if that red line provides some support to bond yields.  If it does, and bond yields stabilize or move higher, that could put downside pressure on stock prices.   Just as falling yields may have contributed to the three-month stock rally, any upturn in yields could have the opposite effect.