The S&P 500 double-bottom finally collapsed Feb. 27, after holding firm for more than four months. But the strong 800 to 820 support zone gave way several weeks before, led by the Dow Industrials, which cracked its support at 7,940 even before that.The breakdown hit a plateau at the Dow 7,390 area, which also marked the market's low on Nov. 21. After several days of indecision, sellers drove stocks to new lows and the Dow headed for lower ground. So where do we go from here?
A trend line drawn from the October 1987 low of Dow 1,950 that connects to 2,334 in October of 1990 extends to 6,526 -- a possible target. And the Fibonacci numbers shown in Tuesday's Daily Market Outlook indicate support at 6,054. My estimate is that the next solid support is within the range of 6,050 to 6,525.
Until then, it would be best to either take a vacation and ignore the market or jump onto your favorite Ultra Exchange-Traded Fund (ETF) and try to make lemonade from lemons. (My current favorite is the Ultra Short Technology ProShares (NYSE: REW), and it's my trade of the day.)
But if you decide on the ETF lemonade, be aware of the oversold nature of the market and the possibility of a brutal rally by panicked short sellers. In all cases, use a stop-loss order that prevents your lemonade from going sour.
Sam Collins is a contributor to OptionsZone.com.
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