Market Faces Test at the 50 EMA

Last week started out with a big market decline (Monday) as price broke below a 5-day range pattern that formed near the 50 EMA. But after a sideways Tuesday and Wednesday, the market ended the last two days with fairly strong up moves that erased Monday's decline.  For the week, the Nasdaq gained +0.54%, the S&P rose +0.84%, and the Dow climbed +0.61%.

Economic reports released Friday were either good or bad, depending how you wanted to interpret them. Even bad news can seem good if it wasn't as bad as expected. Regardless, the market's reaction can be interpreted as positive. The real question is whether the last two up days were due to shorts covering (taking profits) or from real buying demand. 

Technically, the market is expected to retrace up to the 50 EMA to test for resistance. If rejected, then price will test back down again. If price crosses above the 50 EMA and holds above it, then the market can continue advancing to retest the January highs for trend continuation. For the record, the Nasdaq has already closed above its 50 EMA but the S&P has not. But there is no evidence yet for "support" above the 50 EMA.

In the big picture, the daily chart shows the last swing low in the market as a lower low, and the current upswing has not yet made a higher high. Prudent bulls will wait for either a new high or higher low before putting cash at risk. In the big picture, the weekly ADX line has turned down, and this usually means a retracement/range period may be coming. If so, the market will continue to be volatile in both directioins.