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Wednesday, April 28, 2010

Rally Derailed

Stocks made an abrupt U-turn on Tuesday, as the news of downgrades on the sovereign debt of Greece and Portugal sparked the biggest day of selling the market has seen in months. The dollar soared, stocks plunged on high volume, and the major indexes closed near session lows. Up/down volume was an attention-grabbing 16 - 1 negative on the NYSE and close to 10 - 1 negative on the Nasdaq. Suffice to say the bears did themselves proud, with broad-based losses that called the current uptrend into question. There have been other strong distribution days during the rally that proved to be one-day wonders and it will be important to monitor what kind of follow-through action takes place in the days ahead. At this point, we have a blazing red flag but no confirmation of a true reversal or significant correction underway yet. The very near-term picture may be more complicated by the FOMC policy scheduled for 2:15 this afternoon -- an event that typically creates market volatility and often several head fakes before all is said and done. Friday's blog post called attention to a possible "shift in the trade winds" nearing, and shift they did with gale force on Tuesday -- but it's still too soon to conclude there's a "perfect storm" on the horizon. Let's get to the charts.

The $COMPX session low found initial support at its 20-day SMA where a bounce of some degree may materialize.
The $SPX also stopped at a support level, but the fractured short-term uptrend should be watched for follow-through selling.
Short-term support can also be seen on this line graph of $NYA.
Financial stocks got hit hard and look precariously positioned here.
Precious metals shone on Tuesday, and rose along with the dollar, decoupling from their more usual inverse relationship. Gold broke out of the bullish pattern we've been monitoring, complete with volume for confirmation of a new move underway.
And let's not forget the $VIX, which spiked dramatically to close well outside its upper Bollinger Band which is often a trigger for at least a short-term market rally (though not always).
Futures are bouncing in the pre-market and EUR/USD is getting a boost as well. The short-term chart is working on a double bottom base that should be watched intraday and could lead to move higher intraday.

That's it for now. We should know soon whether or not the bears can take the baton and run with it for awhile or if we're dealing with a particularly nasty short-lived shake-out before resuming the trek higher. The market has been overdue for a correction, but at this point there are still a good many bullish intermediate-term charts that suggest we haven't seen the last of the bulls.

Trade well.

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