Support Broken

Quarter end window dressing failed Wednesday, as stocks sold off into the close, after trading sideways for much of the day. The SPX couldn’t hold the 1040 support line; look for next support in the area of 950.

Fibonacci retracements of the move from the March 2009 low to the April top are:

38.2% – 1,008.55

50% – 943.50

61.8% – 878.04

Yes, that’s as much as another 15% down from the current level. We aren’t likely to get there in a straight line, but that could well be where we’re headed. If we can find support at the 1,008 area we should be in good shape for the short term.

For trading positions, any bounces should be watched closely. The 1040 – 1050 area will now be resistance. If an attempted rally fails to get through that level, and especially if up days are on lower volume, it could be seen as an exit opportunity.

Longer term is anyone’s guess, but the market action here isn’t very constructive. However, with a 2 handle on the 10 year Treasury and a 3 handle on the 3o year, it looks like a panic move, so a recovery of confidence may set us up for a nice rally later on. It certainly seems like the old “sell in May and go away” axiom applies to 2010.

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