The Market Has Got Some Fight In It

The markets took a hit on the open due to poor economic data being released. The Dow did a straight bee-line down a bit over 200 points this morning and finally recovered to close down 134.60 or -1.06%. The Nasdaq closed lower by 31 points while the S&P 500 lost nearly 15.

What happened today? Well, even though the markets went lower, we need to look at it in the context of the past few days. Here is what happened:

1) The Dow Jones created a bullish spring off of the May 27th lows. I will use the term "bullish" with caution here as it is not 100% bullish due to the volume of selling that came in at those lows but nonetheless, the Dow closed above that low from 5/27/2008 and thus a bullish spring.

2) While the DOW was setting new short term lows, the Nasdaq was not even close. There continues to be a rotation out of large caps into technology. The Nasdaq is most bullish of indices at this juncture.

The short term picture remains a bit muddy here and therefore, we encourage caution in the near term. Longs and shorts are risky here until we see a breakout in either direction. The next bounce should give us clues; does the market set a lower high and then roll over or do we break out above last weeks highs. This answer will tell us if the market wants to head up to the 13000 level again to fill the gap from 5/20/2008.

I got a few emails asking me why I am short term bullish when I stated that the market would go substantially lower. I am merely suggesting a short term bounce may be in order. NO market heads lower without retracements and it is my responsibility to take note of potential support and resistance levels and look for clues as to whether the market will continue to do as I expect.

In any case, let's take a quick look at the longer term Dow Jones picture. You can clearly see that the breakdown in January was a clear breakdown and that we have grinded higher over the past 5 months to come back and test the breakdown area. Now, with the banks faltering here miserably, I believe that the surprises will come to do the downside. I will go into the banks in my next blog post shortly. Bottom line, short term bounces aside, I believe this market heads towards the lows of January and March before this is all said and done.

Disclosure: None

Comments

[karmaguy]

Finally someone who gets it! Did you know that 15 of the Dow 30 stocks are now at or within easy striking range of their January-March lows when the S&P was scraping along a bottom of 1260.
Yes, I think your dead right, the 1260 S&P lows and Dow equivalent lows wil be tested and broken before the end of September.