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Monday, February 8, 2010

Potentially Pivotal, but Still Precarious

It was an intriguing session on Friday, with a gap-up open which was quickly faded, followed by a rally back to the vicinity of the early highs where the major indexes failed and rolled over hard. The selling steadily intensified as minor support levels were effortlessly sliced through one after the other. More substantial support was finally reached around 2:00 in the afternoon and resulted in a strong intraday reversal that reclaimed all the day's losses and then some, with the major indexes closing in positive territory on big volume and at the high of the day. But just to keep things interesting, heavy selling was taking place in the SPY at the close-- tossing some more mixed signals into the mix at the end of the week. Precious metals stabilized and logged nice gains, also turning up off support after a prolonged correction. The action in the group was encouraging but not yet quite trustworthy until we see nice follow-through and confirmation of a new move higher. The dollar, which has been seemingly unstoppable finally stalled somewhat on Friday and may be ready to take a breather, although the next significant resistance sits somewhat higher still. So in short, we saw some early signs of stabilization, but the step up remains precariously positioned at this point-- and it wouldn't take much for it to lose its footing.

Let's take a look at a few charts, starting with the NYSE Composite, which hit key support to the penny and reversed up in textbook fashion, but there remains work to be done.

The S&P 500 also found support at its 200-day EMA on Friday, which coincides with the primary descending trendline off the 10/2007 high.If support in this region should fail, the next level to watch is around 1020 or so.

Precious metals made a good showing at the end of the week in what might be the start of a move back up following a sharp correction. The miners were particularly spirited, with GLD making progress but lagging  somewhat. It's too soon to throw caution to the wind, however, as many sector charts have considerable repair work to do and need to clear near-by resistance barriers.

That's it for now. We'll see whether the market can build on Friday afternoon's reversal this week. Remember that it is not necessary to always be in a trade. This is still a treacherous area with whipsaw moves that can be tricky to trade. If you're not getting a clear signal from the market, staying on the sidelines and being selective may be the smartest strategy of all.

Trade well.

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