One by one, the key indices appear to be breaking their support lines.The Dow Industrials were the first to break, but the S&P 500 has also fallen through its support zone at 800 to 820, and so has the NYSE Composite. Only the Nasdaq is holding above its January low while the others are in a full test of their November bear market bottoms.
But despite the full attack on the bear market low, it would be dangerous to assume that a market sell-off is inevitable.
Last week I warned of getting too far ahead of ourselves by predicting a new leg down in the bear market. Another Dow reversal like yesterday's could result in a successful test of the low with the establishment of a double-bottom -- but that really is getting ahead of the picture.
What really seems to be developing is a squeeze of the shorts prior to Friday's expiration of the February options.
The large number of upside reversals on individual stocks yesterday puts pressure on the shorts to cover and could result in the indices running back up to just above their 20-day moving averages. For the Dow, that line is at 8,027 and for the S&P 500, it is at 833. If that occurs, watch for a dramatic high-volume downside reversal which could be the signal for a final high-volume sell-off.
One company that has been able to hold on above its bullish support line is McAfee Inc. (NYSE: MFE), my trade of the day.
Sam Collins is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
2-19-2009 @ 12:53PM
BHarrison said...
Basically, the majority of the market activity appears to have been by the short sellers . . . and now even that appears to be becoming unviable.
We're slowly getting to the bottom of the market; however, there is still a lot of adjustments that will continue to occur until some integrity is instilled in the financial reports of the FIs and the corporations.
The vast, vast majority of the American investors simply cannot keep up with the market or interpret the market conditions to participate in the day to day market. With the continuing revelations of massive FRAUDS like Madoff, Standford, etc., the "average American is gong to be EXTREMELY RELUCTANT and RESISTANT to invest due to a lack of confidence and faith in the INTEGRITY of the financial reports of the corporations or the failure of Congress to implement NEW REGULATIONS and OVERSIGHTS to instill INTEGRITY in the FIs, corporations and the markets . . . everyone has been burned too many times in this melt down; and the massive FRAUDS continue to be revealed. ONLY Congress can instill INTEGRITY in our investment markets . . . and they have done nothing in regard to this.