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Stock Market Downside Follow-Through

Stock-Markets / Stock Markets 2010 May 06, 2010 - 02:36 AM GMT

By: Harry_Boxer


The stock market indices suffered another down day as a follow-up to yesterday's break, and confirmed that the downtrend may be underway.

Early in the morning they gapped lower and moved sharply down to get extremely oversold intraday on a short-term resulting in a 5-wave advance back that tested yesterday afternoon's rally's high on the Nasdaq 100 and the S&P 500. But they failed right there near the 1971 range on the NDX and 1176 on the SPX, and a 3-wave decline ensued. The indices retested the lows, made higher lows, and then backed and filled into the close.

Net on the day, however, the Dow was down 59.94 at 10,866.83, the S&P 500 down 7.73 to 1165.87, and Nasdaq 100 down 10.71 at 1958.26.

Advance-declines were 4 to 1 negative on the New York Stock Exchange and 3 to 1 negative on Nasdaq. Up/down volume was 3 1/2 to 1 negative on New York on total volume of about 1 1/2 billion. Nasdaq traded just over 2.9 billion and had a better than a 3 to 1 ratio negative ratio of declining volume over advancing volume.

Here are our Charts of the Day:

Today we are going to examine the short side as the market appears to have broken. All of these stocks can be shorted on strength, as we expect a possible rally the next day or two, but the trend right now looks to be down.

American Superconductor (AMSC) was in a big rising channel that saw it run from 8 to the low 40's, and finally roll over in Jan/Feb bouncing in March and April, forming a bear-flag type pattern that failed at resistance and rolled over. I'm looking for this stock to move down towards the 21 1/2 - 22 zone before it's over, my trading target.

Google (GOOG) has a long rising channel that's finally broken. This stock has been in a down channel since. It dropped from nearly 600 down to just about 500 before bouncing today. It was up 3.39 to 509.76 and reversed near key lateral support, although initial support has been broken. Secondary support provided the bounce. I would look to see this stock to get up to may be 518 - 520-23 zone. If it comes in low volume perhaps a shorting opportunity.

Goldman Sachs Group (GS) has been looking terrible since its plunge on the SEC investigation. It's been hitting lower lows with some stops in between and a few bounces. This stock could easily come down hard, particularly if the market does. Target for GS about the 135 range and beneath that about the 115-20 range.

World Acceptance Corp. (WRLD) has an ominous-looking head-and-shoulders pattern. This stock is pressing the neckline now and looks to me that if it does break, we could see a test of the line down near 27 1/2, my trading target, secondary target around 23.

Good trading!


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