How far will stocks fall?
New fears about the economy have trumped the debt resolution, and the sell-off is in full swing. Here are some critical support levels to watch for.
- The 38.2% retracement support from the July 2010 lows is at $123.51 with the 2010 highs (now support) at $122.36, line a
- The more important 50% retracement support is at $119.15 with trend line support at $118, line b
- The S&P 500 A/D line has broken below initial support with more important support from 2010 at line c. The uptrend from 2009, line d, is a bit lower
- A similar trend line break in May 2010 (highlighted in yellow) was followed by a couple months of market weakness
- There is initial resistance for SPY at $128.74 (200-day MA) with much stronger resistance in the $130-$131 area
- The 38.2% retracement support from the 2010 lows is at $116.30 with the March 2011 lows at $115.51. The 50% retracement support is at $112.31
- The downside target from the H&S top is in the $107.50 area, or 10,850 on the Dow Industrials
- The uptrend in the Dow Industrials’ A/D line from last summer’s lows has been broken, but the A/D line did confirm the early-May highs. A similar trend line break was observed in 2010 (highlighted in yellow)
- The next support for the A/D line is at the 2010 highs (line f) and then at the uptrend, line g
- There is initial resistance in the $121-$122 area with much stronger resistance now in the $123.70-$125 area
- The 38.2% support from the 2010 lows is at $52.64 with the 50% retracement support at $50.42. The longer-term uptrend, line c, is now in the $49.50 area
- The Nasdaq 100 made new highs in May, but failed to make higher highs in July, line d
- The A/D line is now testing stronger support at line e and is leading prices lower. This suggests that the 2011 lows in QQQ will also be broken. Support in the A/D line from 2010 is much lower
- There is strong resistance for QQQ at $57.50-$58.50 with major resistance now above $59
- The 2010 highs are at $74.66 with the 50% retracement support from the August 2010 lows at $72.81. The downside target from the H&S top formation is at $67.50, which corresponds to the uptrend, line g
- The Russell 2000 A/D line closed just below support dating back to last fall, line i. The next support from 2010 (line j) is still much lower
- IWM has first resistance at $78.66-$80 with much stronger resistance in the $82.30-$84 area
- S&P 500: Spyder Trust (SPY) - $119.15-$122.36
- Dow Industrials: SPDR Diamonds Trust (DIA) - $112.31-$115.51
- Nasdaq 100: PowerShares QQQ Trust (QQQ) - $50.42-$53.50
- Russell 2000: iShares Russell 2000 Index Fund (IWM) - $71.50-$74.66
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