Expect Relief to Be Brief

On a very short-term basis, the selling of the last few days may be nearly overdone. That is the good news, in my opinion. The drop yesterday took the S&P 500 to 1543, which is just above the 1540 level that we have repeatedly looked at as the probable first level of support. But the bad news is that the uptrend appears to have been broken, so that now a rally would be unlikely to go to new highs. More likely would be some temporary strength that builds a second shoulder before a penetration of that support, and then a larger slide.

The second chart below shows that the high level of apprehension in the last few sessions has brought in heavy downside volume, and therefore big Arms Index numbers. That has resulted in moves in both the five-day and 10-day moving averages to levels where a rally is likely. But in view of the longer-term implications of the break, only the most aggressive risk-takers should, I believe, try to play such a rally....229 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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