- Technical Commentary -

August 19, 2009 (FinancialWire) (By Dr. Joe Duarte) — The market delivered a split decision on Tuesday. Sure, the S&P 500 (SPX) and the Dow Jones Industrial Average (INDU) managed to close above their 20-day moving averages. But the Nasdaq Composite (COMPQ) and the Nasdaq 100 (NDX) didn’t quite make it back above the key short-term lines. Sure, it sounds as if we’re quibbling over a few centimeters. But in technical analysis, a point or two could make the entire difference between a bull market and something else.

No matter what, this is a good opportunity to take inventory of one’s portfolio and of where the market is. First, from a technical standpoint, the market, as measured by the S&P 500 was up some 50% from the March bottom before it began to roll over last week. That 50% figure is often one that leads to some kind of shakeup in markets. Second, the 20-day moving average has been an excellent support level for the S&P since the March bottom. It gave way recently and is starting to hinder the action in the Nasdaq. Yes, that could reverse, but it also means that a close above or below it is still significant. More important is what could happen if the Dow and the S&P 500 fail to close above this key line for more than one day. This is even more important if the Nasdaq starts to weaken further. That makes the action on Wednesday fairly crucial.

Next, it’s important to consider where the market may go next. The 1011 area on the S&P 500 has proved to be a fairly tough ceiling for the rally. That means that a major breach above this chart point would be bullish. On the other side 950 or so is important. A break below that would likely lead to more selling.

Finally, despite positive market breadth on Tuesday, volume was far below average. That’s a sign of a lack of conviction on the part of big money investors. And that could be the deciding vote as to what happens next, which may well be a bit more selling.

The bottom line is that we could be seeing the start of an important correction or that we’re just seeing the effects of Wall Streeters hitting the beaches for one last summer fling. Before making any big decisions, we suggest letting this market do what it’s going to do over the next few days. We’ll know soon enough.

The FirstAlert(tm) Economics Calendar lists EIA Petroleum Inventories (10:30 a.m.).

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Quote of the Day: “People who have what they want are very fond of telling people who haven’t what they want that they really don’t want it.” Ogden Nash

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Happy Birthday: Madame du Barry, Orville Wright, Coco Chanel, Ogden Nash, Gene Roddenberry, Willie Shoemaker, Diana Muldaur, Ginger Baker, Jill St. John, Bill Clinton, Gerald McRaney, Tipper Gore, John Deacon, Jonathan Frakes, Peter Gallagher, Adam Arkin, John Stamos, Kyra Sedgwick, Lee Ann Womack, Matthew Perry.

Today in History: In Salem, Massachusetts, in 1692, one woman and four men, including a clergyman, were executed after being convicted of witchcraft. In the War of 1812, American frigate USS Constitution defeated the British frigate HMS Guerrière off the coast of Nova Scotia, Canada, in 1812, earning her nickname “Old Ironsides.” Jacque Daguerre presented his new photographic process to the French Academy of Sciences in 1839. New York Herald broke the news in 1848 to the East Coast of the United States of the gold rush in California, although the rush started in January. American frontier murderer and outlaw, John Wesley Hardin, was killed in 1895 by an off-duty policeman in a saloon in El Paso, Texas. The first All-American Soap Box Derby was held in Dayton, Ohio, in 1934. Cold War: In Moscow in 1960, downed American U-2 pilot Francis Gary Powers was sentenced to ten years imprisonment by the Soviet Union for espionage.

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