Last week was by far the most volatile week I have ever witnessed. Granted I haven’t been around the block as much as many others, but I am sure many more seasoned investors would tell you the same thing. Four days in a row of 400-point moves on the Dow is pretty remarkable given that even one move of that magnitude is certainly newsworthy. So the big question is where do we go from here? Let’s see if the chart has an answer.
The Chart
The S&P 500 has hit its first level of resistance at around 1200-1204, so we’ll see if it can break through this. Textbook technical analysis says that a V-shaped rebound from such a drubbing is not in the cards, but over the past few years, investors have seemed to ignore this maxim. There is now a lot of overhead resistance from the big drop from the 1260 level. Will these folks start to unload as their shares start to get closer to break even?
If somehow the market gets back up to the 1260 level, there are a lot more sellers to contend with there. It might be a little more unpredictable given the panic nature of those selloffs, but I would put my money on their being some strong overhead resistance there.
After that, the 50 and 200-day moving averages around 1281-1285 will act as even stronger resistance levels. I am impressed by the way the market has sustained a decent bounce and erased last week’s losses (albeit relatively small on a percentage level). I would be extremely surprised if it was smooth sailing all the way back to the recent highs, and I bet I wouldn’t be alone with that sentiment.
My advice at this time is to remain cautious and to keep significant powder dry. I think there is a good chance that there will be another downside move in the market in the near future as the problems that caused the first one haven’t been resolved at all. Some sort of good bounce was inevitable and I think we are seeing that now. Take some profits if you have them and as always make preservation of capital your number one goal during this time.
Getting Technical: Where Do We Stand After The Chaos? is an article from: 
