Don't Expect More Than a Bounce
The drop early last week took the S&P 500 right to the support area we had been looking at -- 1425 to 1430. But the Dow did drop below the prior support, as did the Nasdaq, and we saw a break in the S&P's uptrend line going back to June. These are all negative signals. Nevertheless, as I wrote last Thursday, a rally was to be anticipated after the large decline. One rally did try to develop, but so far it has been rather unimpressive: Volume has been low, and moves have quickly run into renewed selling.
Because downside volume never became unduly heavy, the market did not get at all oversold on the selling, so the Arms Index moving averages are still neutral. That suggests there is little reason to expect anything more than a small bounce in here before the S&P goes lower. I do not think there is enough room on this rally for a speculative long position. A break below last week's low would be a call for a further shift to the short side....241 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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