With Support Zones Pierced, What’s Next?

After seven straight days of losses for the S&P 500 and the worst Thanksgiving
week for the Dow Industrials since 1942, investors were apparently happy to
forget about stocks and go shopping. After all, early reports show that
Friday's retail sales were up 6.6% over 2010's Black Friday the strongest
increase since 2007, easily topping last year's mediocre 0.3% rise. The real
reason for last week's poor stock market performance had less to do with the
U.S. economic outlook than Europe's continuing debt problems. Italy's weak
bond auction, which on Wednesday produced little demand and a yield of 7.3% for
its 10-year and 7.8% for its 5-year note, was a disappointment. On top of that,
S&P downgraded Belgium's credit rating, and on Thursday Fitch reduced
Portugal's debt to junk status. Click to Enlarge The break of support for the
Dow Industrials was significant because many technicians expected these
dividend-heavy 30 stocks to provide some stability at the 11,600 area. Instead,
the Dow folded as easily as less-dividend rich indices. Note, however, that MACD
is now oversold, though not as much as at the bottom of the August sell-off, and
the downward slope on the 20-day and 50-day moving averages tells us the index
has not yet reached bottom. Click to Enlarge This chart, like the chart of the
DJIA, shows how easily the S&P 500 sliced through the initial support at 1,220
to 1,180, which is at the top of the major support zone of 1,220 to 1,120.
Almost three months of day-to-day trading took place between 1,220 to 1,180, and
yet it was pierced in just three days. Also note that like the DJIA, the S&P
500s 20- and 50-day moving averages are turning down a sign of further
weakness. But MACD is getting close to the extreme level of August, and this
could indicate that we are due for a bounce-back to the red resistance line at
1,180. It could also indicate that the support at 1,120 to 1,140 has a chance of
slowing the decline. Click to Enlarge The chart of the U.S. Dollar Index Bullish
ETF should be carefully monitored, since Friday's close rests almost exactly
on the long-term bearish resistance line at 22.45. A close above 22.42, which is
also the high of September, would signal that a new bull market in the dollar is
confirmed. This, of course, would tell us that the decline in stocks is far from
over. Conclusion: