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Stocks Hold at Critical Support Level

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)

The S&P 500 index rebounded from large early losses to close moderately higher today, holding at congestion support at the lower boundary of the distribution formation that has been developing since February.

The large hammer candlestick that formed on the daily chart as a result of the intraday reaction suggests that at least a short-term bottom may be forming in this area of strong support. Additionally, we have entered the window within which the next Short-Term Cycle Low (STCL) is likely to form, so a potentially violent oversold reaction could begin at any time during the next several sessions.

A close down near the low of the session would have been a major breakdown and the late rally preserved the integrity of the consolidation formation. However, the long-term topping scenario remains firmly in control for the time being and the cyclical bull market from early 2009 has experienced significant technical damage during the sharp decline from July. As we discussed yesterday, the character of the alpha phase of the forthcoming short-term cycle will provide the next signal with respect to long-term direction. We will identify the key technical developments as they occur in our daily commentary available to subscribers.

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