Is The Dow Jones Industrial Average Sell-Off Over?

Technical analyst Dave Chojnacki of Street One Financial recaps Tuesday’s big rebound for equities and updates the key technical indicators to watch for signs of future weakness, as stock volatility remains highly elevated.

Futures were pointing significantly lower before the open on Tuesday, indicating another weak open. Equities didn’t disappoint as they opened lower, following up on Tuesday’s big selloff.

It didn’t take long for buyers to step in this time, however, and reverse the market direction. The remainder of the session was extremely choppy in a very wide range. By the end of the day, the major indices closed with significant gains and removed some of the pall of the prior session. Was this just a “dead cat bounce” though? Only time will tell.

At the close, the Dow Jones Industrial Average (DJIA) was up 2.3%, the S&P 500 (SPX) added 1.7%, and the Nasdaq 100 (NDX) gained 2.6%. Breadth was decidedly positive, 2.6 to 1, on heavy volume. ROC(10)’s declined across the board and remained in negative territory.

RSI’s moved higher in the session, coming off the oversold territory. The DJIA RSI finished at 40.6, the NDX at 46 and the SPX at 39. All three major averages continue with their MACD below signal. The ARMS index ended the day at 0.61, a very bullish reading.

In all, we got a nice bounce off the lows yesterday to finish with a good gain. The averages pushed above a couple technical levels, suggesting we may have tested the lows near term. This action will have to be confirmed in the next several sessions.

The DJIA moved back above its 50% retracement level of 24206. It remains just below its 50D-SMA of 25058. It did close above the prior session’s bearish candle mid-point. The NDX closed at 6665, above its 38% retracement level of 6606. It is also back above its 50D-SMA of 6585. The SPX closed at 2695, above its 50% retracement level of 2665. It remains below its 50D-SMA of 2718. The SPX also closed above its prior candle mid-point.

The VIX moved lower by 19.6% to 29.98. Volatility continues high however, and as long as the VIX is high, we have the potential for more selling.

Near term support for the NDX is at 6650 and 6600. Near term resistance is at 6675 and 6700. Near term support for the SPX is at 2665 and 2650. Near term resistance is at 2700 and 2718.

Europe is higher in early trade Wednesday, while U.S. futures are pointing lower in the pre-market. The only major economic report on tap today is the EIA Oil Report at 10:0am.

The SPDR Dow Jones Industrial Average (SI:SPDR) ETF (DIA) fell $1.00 (-0.40%) in pre-market trading Wednesday. Year-to-date, DIA has gained 0.64%, versus a 0.85% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 79 ETFs in the Large Cap Value ETFs category.