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Stocks Return to Critical Short-term Support

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

The S&P 500 index closed sharply lower again on Thursday, breaking well below support at the lower boundary of the rising wedge formation and beginning a test of critical short-term congestion support in the 1,120 area.

As expected, the rising wedge breakdown was followed by a quick return to the 1,120 level. There is no meaningful support below 1,120 until the congestion zone near 1,065 that served as strong support on the weekly chart during the correction in 2010, so a move down to new short-term lows would forecast a relatively quick decline to the 2010 lows.

The short-term cycle from last week continues to track the bearish scenario that we outlined earlier this month. The sharp decline today reconfirms the formation of the latest Alpha High (AH) as indicated by the cycle high signal that was generated yesterday.

The stock market is on the verge of another important breakdown, so it will be important to monitor price behavior closely during the next few weeks. We will identify the key developments as they occur in our daily commentary available to subscribers.

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