Bears Strike Back; XJO Back Under 5,000

Double digit YTD returns only in February? Not so fast. With one swift move, the XJO is back under the magic 5,000 level. A loss of this magnitude has not been since May last year, and many financial commentators are chalking it up as a "healthy correction" that "we had to have". Whilst this premise may be proven until guilty, the next few days should make it clearer see whether a broader trend reversal has arrived.

The first key level we have to watch is the 4,969 mark which was swept aside earlier this month. We predicted that there would be bears waiting in earnest for a fight to protect 5,000, however we were proven wrong with the strong positive momentum over the past couple of weeks. The revisit below 5,000 gives another chance to bears to reload and place negative pressure to drive a more sustained correction. The MACD has already reversed into negative divergence territory alone on today's move, and the stochastics are also showing a move backing away from extreme overbought territory.

Bears will want to target 4,969 and the rapidly rising 20DMA, which also happen to converge with the upward trending support. If this level breaks down rapidly, we may see a bigger correction in store, perhaps back towards 4,850 and the 50DMA.