NEW YORK (TheStreet) - The major equity averages are straddling their key weekly moving averages with mixed momentum readings. This creates a technical bull versus bear tug-of-war, and if the bears take stocks lower this week, the downside risk could be significant.
The bulls are represented by the Nasdaq Composite which ended Friday, June 12 with a close of 5,051.10 above its key weekly moving average of 5,032.88 and with a momentum reading of 80.62 -- above the overbought threshold of 80.00. Also on the bull side of the rope is the Russell 2000, which had a weekly close of 1,265.02, above its key weekly moving average of 1,251.29. The Russell ended Friday with a weekly momentum reading of 63.90, up from 60.90 on June 5.
The bears are represented by the Dow Jones Industrial Average, which had a weekly close of 17,898.84, below its key weekly moving average of 17,998.55, with a momentum reading of 63.28 -- down from 72.87 on June 5. Also on the bear side of the rope is the Standards & Poor's 500 which had a weekly close of 2,094.11, below its key weekly moving average of 2,101.73 with a momentum reading of 74.25. That's down from 81.58 on June 5, tumbling below the overbought threshold of 80.00.
The Dow Transportation Average is anchoring the bear side of the rope with a weekly close of 8,416.80, below its key weekly moving average of 5,570.01. Transports began to form the bear team at the weekly close on May 1.
Weekly momentum for the transports fell into oversold territory the week of June 5, and the current reading of 18.02 is down from 18.92 on June 5.
The transports were telling investors to "sell in May and go away," but the other averages ignored this bear's roar.
What's interesting to note is that the Nasdaq and Russell 2000 have not seen a new high since 5,119.83 set on April 27 and 1,278.63 on April 15, respectively. It's been the industrials and S&P 500 that continued to new highs, then joined the side of the bears. The Dow set its all-time intraday high of 18,351.36 on May 19 with the S&P doing so the next day at 2,134.72.
This week should determine the winning side of the tug-of-war, as investors digest housing data on Monday and Tuesday, the FOMC meeting on Wednesday and Quadruple Witching on Friday.
The bulls will be trying to pull the economically-sensitive transportation average to a weekly close above 8,570.01, while the bears try to push the Nasdaq and Russell 2000 into weekly closes below 5,032.88 and 1,251.29, respectively.
Meanwhile, the three ETFs that track the Dow 30, S&P 500 and Nasdaq are leaning toward the bearish side. Here are their weekly charts.
Courtesy of MetaStock Xenith
Diamonds had a close of $119.13 on Friday, up 0.7% year to date, but below its key weekly moving average of $179.92. Its weekly technical momentum reading of 65.50 this week is declining below the June 5 reading of 74.25.
If Diamonds stays below key levels on technical charts at $179.33 and $180.09, the bears will likely win the tug-of-war.
These levels expire at the end of June and at the end of this week, respectively. If the bears win, the downside risk are key technical levels of $150.82 and $145.24 which do not expire until the end of 2015.