Wednesday, November 12, 2008

Stocks sit at the edge of a cliff

The title says it all. Just below here we see support at the October lows but below that is a pocket of air. I've got the dow above but pretty much all the indicies (small caps especially) share the common quality that another red day tomorrow (1% or more) will confirm a major technical breakdown (new multi year lows). The next expected area of support would be the 2002 lows at 7,200-7,500 but the target from this pattern is roughly 6,650 (8,150-1,500 above). But, and this is a big but, I expect prices just below here (8,150) would provide significant support based on the October panic lows, flat lower Bollinger bands, signs of a bottom on weekly time frames and a general psychological turning point. In other words, I'd expect a big bounce tomorrow or a big drop tomorrow. If we drop and don't recover things will be real ugly Friday. If we bounce however, then the upper end of the range will come into play (18%) higher. As regular readers know, I am definitely expecting the market to fall further, 6,650 doesn't seem unreasonable at all, but first I'm looking for a big rally into 2009 from here. If there's one thing this market has taught me its to be open minded. The charts are telling me that if the market goes a little lower it will go alot lower. Conversely, if the market finds support here then it should rally at least 18%. But be aware that if a breakdown reversed it would also turn out to be a powerful move back up, so stops are essential either way you play this.

I will do a follow up post on energy and solar soon, it sucks what is happening to those stocks right now but at least gasoline is cheap again.


Anonymous said...

apparently stocks had a rocket up their rears today as they fell off the cliff and ignited the rocket midair. we have lift off!

pythagoruz said...

Yep, that was the infamous failed breakdown we have come to love so much. Talk about a fast move!!