Securities Research Services

Tuesday, February 19, 2008

Stocks Remain Range Bound

The SPY, and all other major indices, continue to trade below all major moving averages. On Thursday prices threatened to roll over out of the near term uptrend and in fact they did on Friday. Selling on Friday wasn't spectacular, however, and the selling was quickly contained. We would consider the day essentially a draw between sellers and buyers.

Technically the market is projecting a retest of January's lows. Technically traders should be short here.

That said, we aren't sure that the message sent by the technicals is reliable here. European markets rallied hard yesterday while US markets were closed. It remains to be seen whether the US market will follow today.

The bottom line is that the market remains range bound. There are two key areas to watch on the SPY. A close above $136 would break overhead resistance and would project a run up to $142+. A move below $131.50 would be a breakdown and would project a retest of the lows.

We would be strong buyers if the price were to move back into the $126-$129 area again. Such a move would constitute a low risk buying opportunity.


The rebound rally back up to the 40- and 50-week averages we have been discussing will likely occur sooner rather than later. Until prices regress back to their mean, risk of whip saw will remain high and position sizes should be kept small.

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