Following through on the previous day's downward momentum, stocks initially got off to a rough start last Friday morning, but the tone subsequently improved a bit. All of the major indices oscillated in a wide, choppy range throughout the day before finishing with mixed results. The Dow Jones Industrial Average, down 1.6% at its intraday low, recovered to lose only 0.2%. The Nasdaq Composite fell 0.5%, but the S&P 500 eked out a gain of less than 0.1%. The small-cap Russell 2000 advanced 0.5% and the S&P Midcap 400 bounced 0.2%. Overall, the split market's closing prices were rather nonconclusive.

Turnover eased from Thursday's record high levels in the NYSE, but still remained well above average. Total volume in the NYSE decreased 10%, while volume in the Nasdaq came in 15% below the prior day's level. Despite the positive closes in a few of the major indices, market internals were modestly negative. Declining volume in the NYSE exceeded advancing volume by a margin of 1.2 to 1. The Nasdaq ratio was negative by 3 to 2.

Last week, the 200-day moving average was in play with both the S&P 500 and Nasdaq Composite. The S&P 500 closed firmly below its 200-day MA on August 3, but moved back above it the following day. After rallying for two days, the index fell back down to its 200-day MA on August 9, closing right at that pivotal support level in each of the past two sessions. The daily chart of the S&P 500 below is a great example of how the 200-day MA often acts like a powerful magnet when an index or stock nears that level:



Unlike the S&P 500, which traded below its 200-day MA several times, the Nasdaq successfully tested and held above long-term support of its 200-day MA:



The fact that the Nasdaq held above both its 200-day MA and prior short-term low may help the broad market move higher if it attempts to do so. Conversely, the Dow Jones Industrials may have a more bearish technical view because it undercut its prior lows last Friday. However, it is still well above its 200-day MA:



The Russell 2000 held up better than the other broad-based indexes in the latter half of the week, but its intermediate-term view is perhaps the most negative. It is the only one of the major indices stuck below its 200-day MA. Since falling below that level on July 26, the index has been unable to move back above it, even on an intraday basis:



As you might have heard over the weekend, there is a lot of speculation that the Federal Reserve Board will make an emergency interest rate cut sometime this month. Such a move may initially yield a positive reaction from the market, but don't count on it sticking. Many traders might view an emergency rate cut as actually compounding the current liquidity issues. Personally, we don't have an opinion on all the liquidity news flying around lately. Instead, we have been handling the market as we have always done -- using technical analysis to simply trade what we see, not what we think. Nevertheless, stay alert out there, as this remains a very news-driven market.

Open ETF positions:

Long - PBW, RWM, DXD
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.