Inside NYSE Composite's Quiet Correction

NYA has plenty of room to keep falling before its 200-week moving average can come to the rescue again

by Bernie Schaeffer

Published on Oct 30, 2018 at 9:14 AM

Many headlines this past Wednesday, Oct. 24, covered the Nasdaq Composite's (IXIC) close in formal "correction" territory, down more than 10% from the all-time high it had reached as recently as Aug. 30. But considerably less attention was paid to the fact that the Nasdaq's less-flashy cousin, the NYSE Composite Index (NYA), also closed in correction territory that very same session.

You have to look as far back as Jan. 26 to locate NYA's reigning all-time peak (on both an intraday and closing basis) of 13,637.02, as the Big Board tracker never quite gathered the "second wind" of bullish momentum that propelled the S&P, Dow, and Nasdaq to fresh highs in more recent months. That puts a 10% correction for NYA at 12,273.32 -- and amid last Wednesday's heavy selling, NYA not only fell below this psychological line in the sand, but it also settled below the 12,000 millennium level for the first time since September 2017, thudding to a close of 11,969.74.

And 12,000 wasn't the only technical barrier that NYA sliced through on its way down. The accompanying weekly chart shows that formerly reliable 2018 support at the 50-week moving average was broken during the second week of October, but the index found a backstop in the form of its 80-week trendline. Along with the round 12,400 area -- a former layer of resistance in late 2017 -- the 80-week moving average supported NYA through two Friday closes before giving way to last week's widespread panic.

Back in early November 2016, there was a one-week breach of the 80-week moving average by NYA. That break was caught by the 200-week trendline, which at the time was in the immediately vicinity, and the index's ensuing speedy recovery was aided by a bullish momentum shift the following week, sparked by widespread buying in response to the unexpected U.S. presidential election results.

This time around, NYA's 200-week moving average lies as far south as the 11,360 vicinity, which means the index has quite a bit of room to keep falling before this trendline can "come to the rescue" once again. And in the meantime, it remains in correction territory with numerous former layers of support are now looming overhead -- and the longer NYA remains below these levels, the more likely they are to pose a threat as potential obstacles on NYA's eventual road to a rebound.

That said, perhaps the likeliest scenario from here is not that NYA (and its more "popular" counterparts) keeps tumbling until it meets up with longer-term support levels, but that it continues to trade in a wild, volatile, choppy range until longer-term support levels gradually catch up to the meteoric gains racked up during the massive bull run experienced by stocks during the nearly two-year post-election period.

nya weekly chart 1026


Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, October 28.

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