Dow Turns Moderately Bearish
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Dow Shows Moderate Bearish Trend
Summary
This article provides a technical analysis of the current stock market trends.---
In trading yesterday, only the tech-heavy NASDAQ avoided the downturn, climbing 3.04 points to remain above 2300, maintaining its five-year high. The NASDAQ's breadth has been improving.
The DOW suffered the most, dropping 65 points (0.58%) to 11,150.70, falling below its critical short-term 20-day moving average, which is a warning sign. The S&P 500 dipped 2.64 points. Both indices show the weakest near-term technical signals.
Small-cap stocks continue to perform well, despite a slight dip of 1.58 points (0.21%) in the Russell 2000. This small decline is positive given the overbought condition, with the index up a solid 13.28% this year. However, sustaining this growth rate remains questionable.
In commodities, May light crude futures on the NYMEX rose above $67 a barrel. The near-term outlook is bullish, supported by a breakout from a Rectangle formation between $61 and $65.50. If oil prices hold between $65.50 and $66, they may climb towards the $70 mark, last seen in February. However, since the contract is overbought, expect potential selling pressure. High oil prices could affect stocks.
Trading volume on the NASDAQ exceeded 2 billion shares for three consecutive sessions, with yesterday's volume at 2.22 billion, surpassing 5-day and 10-day averages. This strong volume is encouraging after a major breakout on Wednesday.
On the NYSE, trading picked up to 1.61 billion shares, above both 5-day and 10-day averages.
The near-term technical outlook for the NASDAQ is bullish but could weaken. The Relative Strength Index remains strong, suggesting potential gains if maintained. The index is above its previous pivot of 2332.95 and its five-year high of 2333, indicating a positive trend. It is also trading above its 20-day and 50-day moving averages of 2297 and 2285.4, respectively.
The MACD indicator shows a moderate buy signal. After a negative trend, it has reversed. The bullish breakout from an intermediate sideways channel hints at further gains toward 2366 and 2387. However, as the index is slightly overbought, some selling pressure is expected.
For the DOW, near-term signs are moderately bearish. The intermediate trend is positive, but yesterday's dip below the 20-day moving average of 11,156 is a concern, suggesting potential further weakness. The Relative Strength Index has dropped below neutral, indicating possible loss of momentum. The MACD turned bearish, signaling a moderate sell.
The critical factor for the DOW is holding around its 20-day moving average. Further weakness is likely, although it's nearing an oversold condition. If the DOW fails to hold, it could drop to 11,092, 11,077, and the 50-day moving average at 11,016. A rebound might push it back above its 20-day average to a pivot point at 11,234.
The DOW's Bollinger Bands are widening, indicating increased volatility.
For the S&P 500, the outlook is neutral to moderately bullish. The Relative Strength Index weakened slightly but remains above neutral. The index is trading above its 20-day and 50-day moving averages of 1,294 and 1,283. The MACD is neutral.
Near-term targets are 1,310 and 1,333. If it fails to hold the 20-day moving average, weakness may follow.
The Russell 2000 remains bullish. The Relative Strength is strong, but sustainability needs monitoring. Breaking above the previous pivot point of 745.18 was positive, with the trend showing higher highs and lower lows.
If the Russell 2000 trends higher, resistance is expected at 772 and 803. However, given its overbought condition, caution is advised.
The advance-decline line on the NYSE (0.77:1) remains mixed, staying below 1.0. The NASDAQ (1.004:1) managed to remain above 1.0, with the daily A/D reading exceeding 1.0 in 7 of the last 10 sessions. The 5-day moving average for both the NYSE (1.27:1) and NASDAQ (1.42:1) remains above 1.0.
The market sentiment is still bullish. The NASDAQ's new high-new low ratio (NHNL) stayed above the bullish 70% for the 14th consecutive day, at 89.35%. The NYSE's NHNL ratio (82.69%) has been above 70% for 15 straight sessions.
Current Technical Overview:
- NASDAQ: Bullish; Relative Strength: Above Neutral; Marginally Overbought
- DOW: Moderately Bearish; Relative Strength: Below Neutral; Near Oversold
- S&P 500: Neutral to Moderately Bullish; Relative Strength: Neutral
- RUSSELL 2000: Bullish; Relative Strength: Strong; Extremely Overbought
Outlook for Friday
The DOW may face further selling pressure as its technical outlook remains the weakest among the indices. However, being nearly oversold, support is possible.
Tech and small-cap stocks show strong technical strength, but caution is warranted due to the Russell 2000's extremely overbought status and the NASDAQ's marginally oversold condition.
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