by Michael Tarsala, CMT
There are three key charts investors will want to watch this week.
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The S&P 500 is above. On an intraday basis, it has broken down below month lows. A test of the key volume support around 1340 now appears likely. Strategists including Jeffrey Saut had called for such a pullback as something inevitable and constructive. A break below that level, however, would be a bit more worrisome, as the next volume support below that is the 1285 and 1300 area.
The Euro-Dollar currency pair also may be breaking down. We'll have to wait for closing prices to be sure. A close below $1.30 and a subsequent fall in coming weeks could be a negative for U.S. stocks, especially some of the multinationals. A stronger relative dollar tends to weigh on the European earnings of large U.S. companies with significant earnings coming from Europe. This also is related to an important move higher recently for the U.S. dollar index.
The chart above is the McClellan Oscillator. You can learn more about it here. I find it's one of the most reliable measures of when stocks are overbought or oversold.
You will see above that turns higher from readings of -100 or less helped to mark lows of the markets. The indicator is now near -20, suggesting that the near-term weakness has not yet been fully worked off.