|In my last posting on 6/30/2010 with the Standard & Poor's 500 at 1075, I ended with "If the market continues to drop, the 1040 level is at risk and not likely to hold. If that were to fail, that would be indicative of a major correction beginning in the market." Clearly, the first part of that forecast has come to pass. The S&P 500 is currently at 1023.|
|Does this mark the resumption of the bear market? In all likelihood I think the answer will turn out to be a resounding "Yes," but not before we get a meaningful bounce, probably near current levels. The market is still oversold, much more so than when I last posted. Moreover, the NASDAQ Composite is now at the 127% Fibonacci support zone created by the June high and low points. This is a logical reversal point of the unrelenting downward move the market has made. See Figure 1.|
|FIGURE 1: COMPQX, DAILY. The NASDAQ Composite has been down 10 days in a row and is deeply oversold.|
|Graphic provided by: Wealth-Lab.|
|The other major indexes are not yet at this support zone, but they are close. Given the oversold levels, I don't think it will take much of an excuse for the market to move back up. After 10 consecutive down days for the NASDAQ Composite, the market needs some type of bounce. Look for a rough 50% retracement of the recent down move, and maybe much more, which would bring the NASDAQ to around 2200 (depending on how much lower we go). This would also fill the gap for 6/28/2010. After that, a resumption of the downtrend is the most likely outcome.|
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