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Brett's Stock Market Pulse Thursday, May 26, 2011 (Indexes Trade Up and Find Resistance at 50-Day Moving Averages)

May 26, 2011 7:52 PM ETDIA, SPY, HD, INTC, MRK, XLY, XLK, XLU
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The market finished higher for the second straight session with the Nasdaq Composite (QQQQ) leading the way with a 0.8% gain. The gains on the broader S&P 500 (SPY) index were smaller rising 0.4% and the DJIA (DIA) marginally rose hurt by the performances of Home Depot (HD), Intel (INTC), and Merck (MRK). The indices finished in the upper end of their trading range. However, participation did not indicate investors were putting money to work in a material way but market internals were strong. Money flowed into the more riskier sectors of the market like Consumer Discretionary (XLY) and Technology (XLK) and out of utilities (XLU) a defensive area. All sectors finished higher except for utilities and Health Care (which finished unchanged in today’s session). We are raising the support and resistance levels on the DJIA, S&P 500, and Nasdaq Composite (except keeping the support level the same on the DJIA-see figures on sidebar). The DJIA, S&P 500, and Nasdaq Composite tried to reclaim their 50-day moving averages intra-day but closed below them. Recently, the major indexes found support at their 50-day moving averages and proceeded to trade higher to test their 21-day moving averages which turned out to be a resistance point. Upon finding resistance at the 21-day moving averages the indices dropped below their 50-day moving averages and are now trying to push back above them. Yesterday and today both the DJIA and S&P 500 had trouble at their 50-day moving averages. Today was the first day the Nasdaq Composite challenged its 50-day moving average and ran into resistance. It will be interesting to see what happens from here with the current stock market direction. If the market fails from here then below 1,305 on the S&P 500 and below 2,723 on the Nasdaq Composite there doesn’t seem to be a whole lot of support until the 1,257-1,276 area for the S&P 500 and 2,617-2,687 area on the Nasdaq Composite. When markets run into trouble they often make a run at prior resistance levels which they fail to overcome and then work their way lower to test prior support levels in order to find a new level where investors are willing to buy shares.

Beginning tonight and going forward we will include both our short and long term outlook on the overall stock market direction. 1) short term: bearish; 2) long term: bullish

No positions in securities mentioned.

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