Source: The Key Short-Term Test Has Begun

The Key Short-Term Test Has Begun

Trading Places with Tom Bowley - Market Recap for Thursday, April 7, 2016

It was a rough day yesterday.  All of our major indices were down.  All nine sectors were lower.  Unless you were trading gambling stocks or mining for gold, you probably saw red numbers.  The selling was truly across the board.  But there was a silver lining in there.  We have seen 20 day EMAs hold as support on our major indices throughout the rally off the February 11th bottom and they did so again on Thursday.  For the bears, closing the market below those rising 20 day EMAs is job #1 because you cannot begin to muster a bear attack with prices remaining above critical short-term support.  The Dow Jones, S&P 500 and Russell 2000 all hit their 20 day EMAs during Thursday's rout, but all three closed above that moving average.  Here's the visual of the Dow Jones:

The red shaded area shows a resistance zone where rallies have died since the heavy volume August selling.  The Dow Jones was beginning to test that price resistance zone when the negative divergence emerged, signaling slowing momentum to the upside.  That's key here because the rising 20 day EMA has continually offered solid support for the bulls while momentum was accelerating to the upside.  Now it's being challenged, but with slowing momentum more apparent.

The worst hit areas of the market on Thursday were the financials (XLF) where banks ($DJUSBK) fell by 2.77% and lost key support.  For a more detailed look at the banks, see the Sector/Industry Watch section below.