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Technically speaking, the stock market was expected to retrace given how much it has risen during the last two weeks. However, what was not expected is the magnitude of the selling. It became apparent very quickly that there was a 0.25% gap between expectations and reality regarding the Federal Reserve’s decision.

Is the uptrend damaged irreparably now? No. The past two weeks saw the market rise too far, too fast, and whenever that happens, there is always greater room for retracements. What would be worrying, however, is if we continue to see multiple triple-digit falls on the Dow, but this would not make sense since there is a high probability that the market will get the additional 0.25% fed funds rate cut at the end of January at the latest.

The silver lining to all of this is we now have the expected retracement, which has brought market breadth back to levels that are more supportive of price gains. However, it is unclear whether or not the uptrend could continue immediately. The chart now shows that only 36% of S&P 500 stocks are trading above their 10-day moving average. This is down from 86% yesterday, which indicates that we could get a small bounce today or soon after.

The Percentage of S&P500 Stocks Above 10-Day Moving Average Declines Sharply

Comments (4)

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1. darex said:
Wednesday, 12th Dec 2007 at 2:08 pm


I noticed that Charles Kirk of the Kirk report mentioned that he expected support to come in at 1490 on the S&P shortly after the fed announcement. This turned out to be remarkably accurate. I am wondering if you have any opinions on this?

2. Mo Shaarani said:
Wednesday, 12th Dec 2007 at 7:39 pm

Hi darex,

Yes, there seems to be support/resistance around that level lately.

It becomes difficult to read the market when breadth is neither here nor there. I’ll have to wait till tomorrow morning, when the charts are updated, to see where things are.

3. angelo said:
Thursday, 13th Dec 2007 at 1:44 am

this was a low volume, declining sloping rally .wolud you think we would see a xmas rally his way if there is a sell off to the oct lows

4. Mo Shaarani said:
Thursday, 13th Dec 2007 at 5:23 am


You mean Nov. lows?

If the market sold off to Nov. lows, then probably there won’t be enough time for a meaningful Xmas rally.

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