The market was facing a fork in the road going into the start of last week.
The bulls were trying to stop the bleeding as the indexes were perched just above their 20 and 50-day moving averages (MA) and were coming off a loss of over 2%, on average, from the prior week. The bears were licking their chops and wanted more as they focused on breaking support and pushing lower levels.
Monday was a pivotal day as the ongoing U.S. and European debt concerns continued to rattle the market. The selling pressure at the open pushed the indexes below major support levels as the S&P 500 dipped below the 1,300 level while the Nasdaq fell below 2,750. However, the bulls battled back late in the afternoon to hold support which was a sign of things to come.
The market got a huge surge on Tuesday after the “Gang of Six” came to the rescue. The group of senators proposed a plan to cut the deficit by nearly $4 trillion over 10 years, in part by raising $1 trillion in new revenue. Obama loved it, Wall Street went bananas over it, and the market turned on a dime as the bulls reclaimed short-term resistance levels.
Following a 2% surge, Wednesday was a flat day as the bulls digested their gains but did manage to push Tech higher.
Thursday was another huge day as progress on Europe’s debt crisis lifted the overseas markets, while here at home, the water cooler talk was that the White House was close to a “budget deal”. Tech earnings were strong as well as some of the older names resurfaced and announced blowout earnings.
Going into Friday’s action, the market was anticipating a deal between President Obama and House Speaker John Boehner, but that was thrown a curveball after Boehner got his panties in a knot. He said there was no deal and that the two sides weren’t even close to an agreement.
On that note, Friday’s action was mixed as the Dow fell 43 points to end at 12,681. The index traded to a high of 12,740 which was just below our 12,800 resistance target (orange line) after clearing 12,600 on Thursday. We have been outlining a break above 12,800 as confirmation on a possible run to 13,000 all month. Support is incredibly strong at 12,350-12,400 (black line, blue circles) but this week could be extremely volatile. For the week, the Blue-Chips advanced 201 points, or 1.6%. For 2011, the Dow is up 9.5%.
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