Pullback or Breakdown? (SPX, DJUSMT, DJUSRR) 10.12.2012

But alas, the bounce was short lived and the SPX closed just above the open, eking out a negligible gain, and printing a massive candlewick. While some short-term bullish action may be gone, is there still a chance for a bounce or do we breakdown from here?

Since June of this year, the market, SPX, has been in a beautiful channel, trending and fading from one side to another, finding logical support and resistance. Depending on your views, many traders view angled trend lines as major support levels. However, horizontal support, according to some, trumps angled support any day. But perhaps should the two prevail at the same time, one could argue that this occurrence is a powerful support level. The chart below displays such a level, as we have recently sifted across the channel into the horizontal and lower channel trend line; and additionally the 50-day moving average

While this one chart is well and good, under the hood some key indices have the majority of their moving averages above them. See chart below.

Key:

Dow Jones US Trucking Index

Dow Jones US Industrial Transportation Index

Dow Jones US Railroads Index

Dow Jones US Marine Transportation Index.

50 DMA yellow

100 DMA blue

150 DMA purple

200 DMA gray

Perhaps it can be implied that one should move along with caution, for many of the transportation indices seem to have pulled back and according to Dow theory…this is not a good sign.

SPXChart

DJUSTK

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Data from Thinkorswim