Trend is sideways to down; chart of each major index is negative

Stocks opened higher on Friday, but headlines from Europe again interrupted what looked like it would be a strong day for U.S. stocks. After 45 minutes of trading, the Dow Jones Industrial Average had gained over 100 points.

But it was destined not to last when markets plunged on a warning from Fitch that it might cut the ratings of Belgium, Cyprus, Ireland, Italy, Slovenia and Spain. By noon, the Dow was off 50 points, but by early afternoon it had clawed its way back to breakeven and traded in a narrow range for the remainder of the day.

And so despite quadruple witching day — the day that options expire for index options, index futures, stock options, and single stock futures — the day ended flat. Volume, however, was very high with the NYSE trading 1.8 billion shares and the Nasdaq crossing over 1 billion shares. Advancers exceeded decliners on the Big Board by 1.6-to-1 and by 1.3-to-1 on the Nasdaq.

The S&P 500 is in a narrow trading range triangle with a top at 1,260 and bottom at 1,180. It has turned down from its 200-day moving average and last week broke both the 20-day and 50-day moving averages.�

Since Wednesday, its intraday high has been thwarted by the 50-day moving average despite making modest advances for the last three trading days. It suffered a MACD sell signal on Tuesday and has not recovered from it. Support is at 1,180 and resistance is at 1,260.

Of the major indices, the Nasdaq has the weakest chart. The index has decisively turned down from its 200-day moving average and 50-day moving average. Resistance is at just under 2,650 and support is at 2,500. It, too, suffered a MACD sell signal on Tuesday.�

Conclusion: In Friday�s Daily Market Outlook, we studied the charts of the three major Dow indices, the industrials, the transports, and the utilities, and concluded that after months of mayhem the markets appear to be settling down.�

But on Friday, we again saw the impact of negative European news, which led to another mixed day inU.S.markets instead of a healthy gain. Like the Dow indices, the charts of the Nasdaq and the S&P 500 are stuck in a sideways trading range. But unlike the Dow charts, the Nasdaq and the S&P 500 have broken their 50-day moving averages. And they, like the Dow charts, have registered MACD sell signals.�

This week is traditionally slow, and so we may not see quite as much volatility, but the trend is sideways to down with each chart negative. (But you can still make fast profits in a sideways market. Check out my colleague John Jagerson who turned a 67% profit overnight.)

Most disturbing is thatU.S.companies have had a run of good earnings news, and last week we saw a string of better economic numbers too. Experience tells us that when good news results in a bad trend we should watch out. And now many analysts are trimming earnings estimates and individual stock targets for 2012.

If the market can�t move higher in a period of good domestic news, it doesn�t seem likely that it will do better with worse news. Continue to raise cash on rallies.