It was not a good week for stocks with the S&P 500 index down 2.2% and the DJIA pulling back 2.8%, the NASDAQ Composite off by 2.3%, and the greatest damage being done in the diverging Russell 2000 which dropped 3.2%. Bearish engulfing candles formed on the weekly S&P, DOW and Russell charts, and a large “dark cloud cover” candle can be seen on the NAZ chart.
We remain in a period of consolidation in these major averages, and we have seen bullish reversals immediately follow large dark down weeks, but channel and key average support are being severely tested. The decline earlier in the week was on low volume but that changed on Friday, with it moving back above the 50 day moving average of volume, and accumulation/distribution continuing its downward trajectory and moving below its 21 period signal line.
What all this means simply is that the action in these areas has to be monitored very carefully, with the advantage being that the key levels of support are clearly defined.