50day moving average - the line in the sand

With the broad market opening on its highs Friday and selling off hard in the last half hour of trading we have to expect some follow through tomorrow morning. First, given the current weakness in European futures, those markets will likely open down sharply. Once Europe closes it will be interesting to see if their selling hits our shores and what the S&P futures will look like at that time.

The major trend is still up, but there has been some short term technical damage done. With the short term trend over the past 3 weeks being lower and the index below its 50day moving average, as well as many individual stocks below 1 or more of their respective major moving averages, longs are nervous and prospective buyers are more selective. Overall, the broad market has a lot more work to do before the next short term direction is established - a 1270 scenario as outlined below is just one possibility.

Taking a look at the e-mini chart below we can see the market struggling with the area surrounding its 50day moving average. Fridays close below is the second close under the mark in the last 4 trading days and it has to make some of the big movers of stocks (pension funds, mutual funds, etc) a little nervous. Actually in Elliott Wave speak, this slight bounce higher along the 50day could be wave "b" of an abc correction which, if so, would lead to a further selloff possibly equal to wave "a" from approx 1450 to 1350. That would lead the index down to approximately 1270, just above its 200day moving average.

In addition to the heavily watched 50day, watch the closing low from April 10th (1357) and the closing high from April 12th (1386) as major inflection points. A close below the former will likely lead to a test of the 100day near 1312 if not the 1270 mark discussed above, while a close over the latter will likely cause a push higher towards 1400 and an eventual rally back to the March highs. Now if we only knew which way!