Securities Research Services

Friday, July 11, 2008

Market May Be Headed For A Washout

Volume increased yesterday but price is problematic here. The SPY is testing $125 support hard and unless it can bounce significantly higher today it will close out the week with a strong sell signal on the weekly chart.

On the weekly chart view notice the development of a couple of troubling developments. First, note the spreading of the Bollinger Band, quite similar to the same sell signal that occurred at the first of the year when support at $140 was demolished. Over the past few weeks, since the price fell from $143, volume has picked up significantly indicating that it is highly unlikely that $125 will hold here.

Next notice the fact that the 50- the 20- and the 10-week average have all turned down. This indicates a strong downtrend in effect. We suspect that when $125 support finally gives way that the market will wash lower the same way it did in early January.

Note: The B-Band is spreading out and while the price tagged the lower band yesterday, the spread indicates that volatility is growing offering a sell signal. It is unlikely that $125 support will hold if the price closes the week without a significant bounce today.

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