How Deep Can Market Go?

Stock market has become a total mess. Tuesday's follow through day turned out to be a bear trap and has undoubtedly got many technicians who traded a break above the red resistance line into poor positions as we got some more follow through to the downside. On Friday we got a broken descending support line and we shouldn't be surprised if market rebounds on Monday.

Now, the next very important line in the sand is support at around 1295 drawn as a horizontal red line. It has been a pretty obvious support or resistance many times in the past. If market just slices throught or crawls along it next week there is a very high chance that we may be on the verge of the bear market indeed. An inability to rally from such oversold levels would confirm the view that there is no more support in the market. A March low at 1250 is then only a matter of time.

The best thing to do now is to do absolutely nothing. Stock market is in a downtrend and I don't buy in a downtrend. At this moment it is also very risky to start shorting as market is now very oversold after a three day plunge and should experience some bounce soon. As we get the bounce I will be monitoring it very closely for signs of strength or weakness. Another wedging rally on lower and lower volume and a swing high on volume increase would probably mean that 1295 will be broken sooner or later. I will look for shorts then. On the other hand, a strong rally would mean there is still strength in the market. If that happens any down day on low volume would be a confirmation that a temporary low might be printed. If I see such a pattern I might do some buying.

A day to day approach is the best in a choppy market. The next week might be boring as hell but sooner or later a day will come when market direction will become clear again. Until then, don't overexpose yourself in any direction.

Good luck