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2007-02-28 :: A Technical Look At The Aftermath

Below I have cut/paste a technical analysis of yesterday’s market action from Mark Mannings weblog. He’s a great technical analyst and his charts are very clear and understandable.

Today, we are seeing a nice bounce up in much of the market. Whether we make a quick return to index highs or whether this is a dead cat bounce drawing suckers in before a new leg down, its hard to tell.

We had some Good Till Cancelled purchase orders in that filled yesterday during the selloff, and which are all up today. For the most part, though, we are taking a wait and see stance before we make any major adjustments (if any are needed – Chairman Bernanke’s statement to the market today sounds like we are remaining on the path of continued growth and falling inflation…a good sign for the cyclicals that we like).

At the end of Mark’s weblog entry below he gives good advice – Don’t Panic! Always good advice, particularyly when you look at the history of the market’s other big drops (post-911, 1989, 1987, etc.) and the subsequent rebounds.

More later!

Mark

The Nasdaq Composite decisively broke the short-term support at the 50-day moving average. However, it held intermediate-term support levels at 2400. A break below that level on high volume would probably confirm a change in the intermediate-term trend.

The S&P 500 has broken its intermediate-term uptrend and pierced the 50-day moving average like a hot knife through butter on high-volume. We’ll have to see how the large-cap index reacts during a rebound rally. If it is quickly turned away at the 1420 to 1430 level, there may be more downside in the cards.

The S&P 600 Small-Cap index held critical support yesterday at the 405 level. The break below that would probably take it down to test the January lows around 390. We would certainly want that level to hold.

The Dow Jones Industrial Average also decisively broke its intermediate-term uptrend. We will also have to watch the price and volume action on any rebound rally.

Emerging markets have been one of the strongest areas of the market to be invested in. The only problem is that when they correct, it is usually quite dramatic. That is why I have continued to prompt investors to keep close protective stops in these areas.

The bottom line is it is important not to panic and sell into a waterfall. Wait for a bounce and see how the stocks in your portfolio react to it. The weakest stocks are the ones you will want to sell first. Then move your protective stops up under the recent lows to reduce your market risk.