During corrections a new group of stocks will emerge as market leaders once a bottom does occur. Right now keep a close eye on those stocks which are holding up the best and developing a favorable chart pattern. What makes this one extra tuff is that after 5 years of Bear markets everyone’s hopes had been raised by a more positive market environment since the end of last year. Before you start thinking about taking hostages lets just look at the statistical technical facts:
As of last week ,S&P 500 it has fallen around 90 points or 7% the past five weeks and also has broken below its 40 Weekly EMA (blue line). However so far the S&P 500 has held support above the 1230 level which is an important longer term support area that coincides with its upward sloping trend line (brown line) originating from the August 2004 low and its 38.2% Retracement Level (calculated from the August 2004 low to the most recent high).
The Nasdaq has fallen around 275 points or 11.6% since peaking in early April and broke below a key longer term support level this week near the 2135 area. The 2135 area corresponded to the Nasdaq's 38.2% Retracement Level (calculated from the August 2004 low to the April 2006 high) and also was along its upward sloping trend line (brown line) originating from the August 2004 low as well.
The Dow has dropped around 900 points or 7.8% since peaking in early May and failed to hold support at its 40 Weekly EMA (blue line) this week. If the Dow remains under more selling pressure the next area of support appears to be at its 50% Retracement Level (calculated from the October 2004 low to its most recent high) near 10700. The 10700 level is also where the Dow found support at in the late part of 2005 into the early part of 2006 as well (point A). If the Dow fails to hold support at the 10700 level then the next downside support area would be just below 10500 which corresponds to its 61.8% Retracement Level and upward sloping trend line (brown line) originating from the October 2004 low.
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