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Key U.S. Stock Charts To Watch For The Week Ended 2/2/2018

Written by Lance Roberts | Feb 1, 2018

After many months of relentless upward momentum, U.S. stock investors were reminded this week that downside is still possible. Since the summer of 2017, the U.S. stock market has been going parabolic as indices continue to climb ever-steepening uptrend lines. With the market becoming so technically overbought, it’s no surprise to see a pullback. Is this pullback the start of a larger correction? It’s still too early to tell, but here are the key charts that investors should watch to help determine if another bounce is likely or if something worse is ahead.

The daily Dow Jones Industrial Average chart shows how the index has been climbing steepening uptrend lines for the past five months. This week’s pullback brings the Dow back to its most recent uptrend line that began in late-November. If the Dow is able to remain above this line, the chances of a bounce increase. A break below this line would be a worrisome sign and would put the next uptrend line (that began in late-August) into play as the next most important support level to watch.

Dow Daily Chart

Source: StockCharts.com

The weekly Dow chart shows the progression of the parabolic rally over the past two years.

Dow Weekly Chart

Source: StockCharts.com

Similar to the Dow, the SP500 has been climbing steepening uptrend lines since the summer. If the current pullback continues, the next major support level and price target to watch is the uptrend line that began in mid-November.

SP500 Daily

Source: StockCharts.com

The weekly SP500 chart shows the longer-term trendlines to pay attention to:

SP500 Weekly Chart

Source: StockCharts.com

The tech-heavy Nasdaq Composite Index remains the most overbought of all the U.S. stock indices, based on how far it is above the nearest uptrend line.

Nasdaq Daily

Source: StockCharts.com

The weekly Nasdaq Composite chart shows the most important uptrend lines to watch over the last two years:

Nasdaq Weekly

Source: StockCharts.com

The small cap Russell 2000 broke above its key 1,550 level in early-January, which led to a 65-point surge in just a few weeks. Though the Russell 2000 has pulled back this week, the breakout and uptrend is still intact as long as it remains above the 1,550 support level.

Russell 2000 Daily Chart

Source: StockCharts.com

The weekly Russell 2000 chart shows that the index is trading in a rising channel pattern. The longer-term uptrend is still intact as long as the index stays within this channel.

Russell 2000 Weekly Chart

Source: StockCharts.com

There is still very little chart damage after this week’s pullback. If some of the most recent uptrend lines are broken in the next few weeks, that would be a reason for concern. For now, investors should see if stocks are able to stage a bounce from the current levels or if the indices will try to gun for their closest trendlines.

(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)

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Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube

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