A Technical Look at the Major Market Indices

Andrew Nyquist

Financial Crisis, Recession, slow growth, stagflation, bear marketThe past two weeks have been historic.  And that’s a nice way of putting it.  Watching the major market indices fall 15-17 percent in a matter of two weeks, and 6 percent of that coming just yesterday, has created a pit in the gut of all investors, professional and mom and pops alike.  The speed and determination of the drop are concerning, and it is this speed that has also left investors confused and disoriented, like deer caught in the headlights.  Fear, panic, denial, and thoughts of what was and what is finally set in yesterday, culminating in a thud, and maybe a short term bottom of sorts.  And today, like every other day, the sun has risen and unlike the past two weeks, the market has risen.  And many are wondering: what the hell should I do with my investments now?

Unfortunately, there isn’t an easy answer to that question.  The market is broken over the short term and will require a month or two of healing, probably more downside (near term lows), and more volatility.  So, if you can’t sleep at night, and the volatility is killing you, take some off (i.e. sell) into market strength.  I’m a big believer of selling into strength and buying weakness… in increments of course.  And the weakness that you are buying should be done at certain levels of support — levels where it would be difficult for the market and/or a particular stock to fall through.  It is just below these levels that we want to set a sell stop for protection (to minimize losses), and repeat at the next support level.  Or on the flip side, you can set a buy stop just above the break down area to get back in if the price comes back up through.  Some of this is geared for active investors, but the levels apply to all when gaming market allocations.

But, enough already, let’s get to the annotated charts!  And in particular, let’s take a look at the technical structure, highlighting key support and resistance, and Fibonacci Retracement levels for the major market indices:  the S&P 500 (^GSPC), proxy SPDR ETF: SPY), the Nasdaq 100 (^NDX), proxy PowerShares ETF: QQQ), and the Dow Jones Industrial Average (^DJI), proxy SPDR ETF: DIA).

Use these levels as a guide.  To each is your own, understanding that we all have different risk profiles, skill levels, and time horizons.

 

Previously published as a blog by Minyanville.

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No positions in any of the securities mentioned at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.

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