Technicians continue to bemoan that, despite the oversold internal indicators and sentiment numbers that show record levels of fear, the market continues to sell off. Normally at such oversold levels of the key indicators we should expect a rally -- but not lately.A rally may be overdue but, so far, all we seem to get is one or two days up and then down again. The mood is best described by a Standard & Poor's market strategist who on Friday said, "We think the market is in desperate need of a washout to at least turn the tide for awhile back to the upside. We have been looking for a counter-trend rally, but all we are seeing are one-day wonders."
So where is the bottom -- or bottoms?
Last week, I did a study for ChangeWave Research of possible support areas and here is the result: There are two Fibonacci retracement numbers that are drawn from the 1974 low to the October 2007 high.
The first at 60% is at 667 on the S&P 500 and the second is at 61.8% is 639. The next Fib. is from the '82 low at 61.8% to the October '07 high and that is 665. Next is a mega-trend line drawn from the 1984 to 1987 lows, and it intersects our current chart at 667.
Then there is the trading zone of 1996 at SPX 630 to 680, with a mid-point of 665. Note how 665 to 667 keeps coming up -- and perhaps with all of this light wizardry, that is the number to keep in mind for either the start of a meaningful rally or, perhaps, even the bottom.
Tomorrow, we'll take a look at a number that other technicians are targeting as the final low of the worst bear market since the great crash of 1929 and the bear market of the 1930s.
While we await clearer signals on the direction of the market, I'm watching the weakness in the technology sector, and it appears the ProShares UltraShort Semiconductors ETF (NYSE: SSG), my trade of the day, is poised to benefit here.
Sam Collins is a contributor to OptionsZone.com.
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