For intermediate term market moves, 50DMA is considered an important support/resistance where institutional activity intensify in the direction of the intermediate term trend.
But 200DMA defines bull and bear markets. It is considered a bear market if 200DMA is declining and prices are below it. Conversely, it is considered a bull market if 200DMA is rising and prices are above it.
Now think about the following indicator. This indicator shows the number of the stocks above 200DMA. IF you too consider this indicator as a descriptive of bull / bear markets, how would you expect it to move during a bull or a bear market?
The answer is exactly what you see on the following chart. This indicator moves between specific ranges based on the market type. If it is a bull market, the range is approximately 700-1600 as observed between Apr 2003 - Oct 2007. If it is a bear market, then range appears to be lower like 200-1200 as observed during the burst of internet bubble and the current bear market.
The indicator is currently near the top of its bear market range.
The above intermediate term chart doesn't mean market should drop today or tomorrow immediately. There may be more consolidation around the current levels or little higher but the upside is very limited.
In fact the following indicator, 10DMA of OEX P/C ratio, which spotted huge tops starting with the bull market high is approaching the spot again. We may need one or two weeks to get there.
NDX/VXN ratio chart showing a test of the neckline is just another evidence for the overall weakness in NDX
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