Maybe there is a technical reason for why U.S. stocks have handed back most of their gains since Monday morning's early surge: The Dow Jones industrial average is having a tough time breaking above its 50-day moving average, considered by some observers to be a bullish point of resistance.
The Dow surged about 140 points sooner after the start of trading on Monday, mostly on optimism over China's decision that it will allow its currency to float. However, the Dow was up a mere 30 points (0.3 per cent) with about an hour left in the trading day. Bespoke Investment Group pointed out that the pullback occurred when the index touched its 50-day moving average.
"The major indices had a tough time breaking above their 200-day moving averages on this current run higher, but they finally broke through last week," Bespoke said on its blog. "Will the 50-day end up being as tough of resistance to get through as the 200-day was?"
The Dow had been flying above both levels earlier this year. It then fell below its 50-day moving average in early May, soon after the start of the stock market correction in April. It fell below its 200-day moving average in mid-May.
The index made a number of attempts to cross above its 200-day moving average as the stock market recovered earlier this month, before finally succeeding on June 15 during a 213-point rally.