stock market

How does the market look from a technical perspective?

The markets have certainly been unpredictable over the last week, but Mish Schneider looks away from the GameStop drama to focus on the wider picture.

This article was originally published on Opto – Understand What Really Moves Markets. 

Dow Jones [DIA] sits alone under the 50-day moving average, while the Russell 2000 [IWM]Nasdaq 100 [QQQ]and S&P 500 [SPY] cleared Friday’s highs and remain above their 50-day moving averages (50-DMAs).

Though only the Dow Jones ended under the 50-DMA, it still had an inside day which shows digestion of its current price area.

This is a hopeful sign for Tuesday compared to where the market left off on Friday of last week, as not only had the Dow Jones broke its moving average (MA) but the S&P 500 had as well.

If both had continued to head lower, a small correction could easily escalate to a bigger correction.

This does not mean we should let our guard down, but it does show that the market is holding its bullish phase.

We define a bullish phase by the location of price compared to the major moving averages.

For instance, bullish phase criteria is created when the price of a security is over the 50-DMA and the 50-DMA is over the 200-DMA.

The next phase where the Dow Jones currently sits is the caution phase.

This means the price is under the 50-DMA while the 50-DMA is over the 200-DMA.

Friday’s close had us concerned because of where the prices closed relative to the 50-DMAs.

If today had closed red, then that would have been a good sign to keep a close watch and take some risk off the table.

Furthermore, high yield corporate bonds [JNK] closed over its 50-DMA which indicates investors and the government are still supporting the risk on environment.

At least for now… stimulus is key.

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