Pre-market futures are green as Europe, and Asia shook out of their slumps while you were sleeping. Bulls were given some hope following the G8 meeting where the world’s 8 largest economies promised to focus more on growth and jobs than austerity. Translated into English, that means they are going to spend money they don’t have and try to inflate their way out of the mess.
Additionally, US stocks are cheap on a couple of accounts. Too many companies are trading below their 10-day moving averages, and the indexes are well below normal relative strength ratings. A rebound is due regardless of the G8’s plans to expand debt.
Just how far can stocks go? Typically, inner-contra moves within the current trend have three common targets. As a rule of thumb, market watchers look for a reversal move of a third, half or two-thirds of recent gain/losses.
In this case, the NASDAQ opened up the landing gear for descent at 3050 and closed at a low of 2778 on Friday. That’s a drop of 272 points. The three possible goals for the NASDAQ are to add on 90 points, 136 points, or 180 points respectively.
However, Top Equity News believes the max move for now is back to 2900. That’s the level where support was found many times on the way down before the index fell apart in the last few weeks. Now, 2900 will act like a lid on the way up.
Overall, TEN believes the Dow, NASDAQ, and S&P have come too close to their 200-day moving averages not to touch them eventually. Pivots don’t usually occur in midflight. They tend to happen at support levels or on key trend lines, like the benchmark 10, 26, 50 and 200-day moving averages.
While stocks could run enough to erase much of the pain of current losses, the new trend is absolutely down. That’s means when the short-covering spree has ended, sellers will return to the forefront and probably take the index down another notch.
When the market is sour, investors are wise to flip the buy the dips maxim around and take profits on rallies. Keep it here at Top Equity News as we will continue to update our readers as market conditions unfold.
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