By, Michael A. Doran, May 21, 2010
The ferocity of the sell off yesterday was a bit of surprise as it appeared that the market would attempt to bounce off the 200 day moving average. Instead the sell off was more intense clearly establishing a foothold below the 200 day moving averages on all major indexes. This usually can signal a major break of a trend.
This would add more potential evidence that the market may be entering a more bearish phase than a garden variety correction. My view is that there will be some attempt to rally the market over the upcoming several days. Another possible scenario would be to crash the low of today and take out the February correctional low.
Obviously there are a number of macro economic factors with Europe and China’s slowing growth that is creating some panic. The best course of action to manage risk is to lean on the pure technical aspects including price volume action of both leading stocks and the major market indexes to guide trading decisions. At this juncture, trading and investment poses more risk and should be for experienced professionals. An intermediate bottom cannot be a certainty at today’s levels. If deleveraging and margin calls were to impact the market on Monday, this could be pouring more gasoline on the fire.
-Michael Doran
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