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The Last Line of Defense...

BACKSTOPPED

The NHL playoffs are in full swing and at this time of year a hot goaltender is often the difference between winning and losing. Hockey's history is a cautionary tale for any highly favored team to not overlook an opponent with a hot goalie: Jim Craig in the 1980 Olympics, Mike Richter in the 1996 World Cup, Ryan Miller in the 2010 Olympics (very nearly won), Jonathan Quick in the 2012 Stanley Cup playoffs.

In hockey, the goalie backstops the team and is the last line of defense against an aggressive opposition.

In today's equity market, the last line of defense against an aggressive breakdown has been the S&P's 200 day moving average.  Over the course of the past 29 trading days, the support level has backstopped falling markets a total of 8 times - today included.


But what happens if this level fails to hold the next wave of selling?  When tested a few weeks back, the market had already expended a lot of energy just to get to that point as price level variances from SMAs were large.  Now, however, market technicals are far more ominous:
  • The market has been consolidating energy in a downward trend
  • The 20, 50 and 100 day trends are all negative 
  • The 50 day moving average has crossed below the 100 day - known as a 'death cross'  
  • The 20 day average had a negative inflection point two days ago
  • Price variances from their 20 and 50 day moving averages are low
A break below the 200 day moving average at this point could lead to the market unleashing all of this coiled up energy in a wave of selling.

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