Nasdaq Composite Breaks 50 Day Moving Average

Normally I wouldn’t make too big a deal about a move above or below a specific moving average. In my opinion, the direction and even the slope of the smoothing mechanism is more important. But in this case, the Nasdaq hasn’t closed below this particular moving average all year. So like the Small-cap Russell2000, like the S&P Mid-cap 400, the Nasdaq Composite can now be added to the “below its 50-day list”. Remember, these 3 are the averages that led us during this bull market. It now seems that these are the ones leading us lower, as the S&P500 and Dow Industrials have yet to break.

As far as the consequences for the Nasdaq go, the news isn’t great. According to Sentiment Trader, the Nasdaq Composite just ended a steak of 73 trading days closing above its 50 day moving average. In the index’s 40-year history there have been 37 such streaks that lasted more than 3 months. But just 4 times has the streak ended after setting a new 52-week high within the past week. Over the next 3 weeks, the index lost value in all 4 of those occurrences. The losses resulted in at least a 4% decline each time. At its worst point over the next 6 months, the Composite lost at least 10% each time as well.

4-18-13 nasdaq break


Daily Sentiment Report Wed April 17, 2013 (SentimentTrader)