Keep An Eye On Resistance

August 24, 2008- Market SummaryIt was a week of mixed results as market participants tried to discern the future direction of the broad market indexes. Many traders are attributing the market's indecision to nearby resistance levels. These levels of resistance, which are shown on the charts below, are causing many traders to question whether bullish rallies will be able to sustain a longer-term move higher. The chart of specific interest this week is of the Russell 2000 because it bounced off the identified resistance level and it is now trading near the support of the consolidation pattern that we mentioned in our previous report.
Last week, we also mentioned that the Nasdaq broke out of a period of consolidation (shown by the converging trendlines). As you can see from the chart, the momentum that was sparked after the rally faced resistance as the index neared the 1,995 level. It is important to note that the 50-day moving average remains below the 200-day moving average, so traders may want to wait on the sidelines in this market until confirmation of a longer-term reversal appears.