Saved by the Fed

Saved by the Fed -- but don't underestimate the importance of Wednesday's market swings. Before the central bank buoyed prices once again, an early rise turned into a large decline that took the Dow to the old support level of early July, around 16,800. Most important was the fact that both the Dow and the S&P 500 went below the ascending trendline going back to mid-April. On the chart below, we see the consolidation that has been forming for over a month. The market seems to be, at best, in a sideways consolidation now, but the clues say it will lead to a larger decline.

Dow Jones Industrial Average Source: StockCharts.com View Chart » View in New Window »

Supporting that view is the 21-day moving average of the Arms Index, shown on the next chart. It is overbought enough to suggest that a longer-term top is forming. It was here a few weeks ago, but we have to look back to last December to find substantially lower values. Shorting rallies rather than buying dips would seem to be the best strategy in view of the last few days....218 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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