A Lower High
4th February 2010
Today’s big fall in the stock market established Tuesday’s rebound high as the first lower high in the stock market in 7 months last July. At that time, the SP 500 fell through it 50 day MA, but was held up by its 200 day MA a week later. Since then, the 50 day MA has provided support since the market broke through once again last Friday. What we now see is that the 50 day MA has turned into resistance.
With such a big fall today, option prices are going to be more expensive than they have been in quite some time. If you are going to put on a trade, I would suggest you make it some type of option spread trade so you do not get killed if the market calms down and volatility drops. At this point, I will not speculate on what could be next, except to say that the SP 500 should find support around 1035, the DJIA at 9700, and the Nasdaq around 2100.
This market action is a confirmation that we are in a correction. The only thing we do not know now is how big that correction is going to be.
JD
