Support Needs to Hold Today
The market turned lower last week and volume was heightened on all major exchanges. The bears still dominate the short term trend, something we have been attuned to since February 24, but the bulls have held support levels remarkably well.
Despite a near term downtrend that began three weeks ago, the bulls have not let one support level break during that time, which is no common feat. But the bulls have not let a support level crack since August 2010, so I've come to expect the unusual from this rally.
However, this pull back is far superior to any other during this rally, which began last summer. Volume is greater and there is also a general sense of apprehension towards buying stocks. The two together indicate the market will take out the bulls near term levels of support and move lower over the coming week.
But, taking out one level of support does not by any stretch make me bearish outside the short term. I wish it were that easy to trade trend but it's not.
Recognition of key support and resistance levels is essential for successful technical analysis. Although it is sometimes difficult to establish exact support and resistance levels, being aware of their existence can greatly improve analysis and forecasting power.
Every index outside the Russell, has built strong
support zones during the seven month rise that started last year. We will
not have another crash decline. Last spring, the indices rallied
everyday, and built no support levels during that ascent. This time, the
indices took small breathers, but pauses nonetheless, on the way higher
which should prevent another huge and fast decline.
Unfortunately, those support areas also promote a lot of sideways
trading, similar to the likes of which we've seen the past three
weeks.
As indicated before, but it's worth repeating, I continue to think SPX
will fall below 1301 and test 1250 support, but for now that is my bottom
price. The other indices have comparable 2-3% declines before must hold
support is tested, and for now it looks like those support zones will
hold. My primary logic being, the sellers have had three weeks to take
one support level, why should I expect that group of weaklings to take
the market any further than a couple percent down.
The negative headlines are persistent, but ineffective against the
bulls. Now that Libya is in flames, can we
not imagine something equally sinister playing out in Saudi Arabia? Or
Iran? Japan may have lost 10,000 people. Entire towns were washed away by
tsunamis. And now, several of the country's nuclear reactors are in
danger of melting down.
Sometimes it's easy to identify a singular event
that has the power to the mood of the entire community of investors from
bullish to bearish. Other times, it's one event, stacked on top of
several others, that finally breaks the camel's back. So I keep
watching
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