Sunday, June 12, 2011

Market close to support zone

The momentum continues to build in favor of the bears here but there is some good news for the bulls. The S&P is very close to entering a major support zone. That coupled with the fact that the indices are deep in oversold levels, and also taking into account the speed and magnitude of the recent decline means that I am expecting a comeback by the bulls next week.

Looking at the chart above, 1250-1260 has been an area of strength for the bulls and I am expecting it to act as strong support even at this time.

Here are some other points to consider:

(1) 1250-1260 is not only a strong area of support but also a well-known area of strong support. Because of that, I would not be surprised to see buyers step in even before the market reaches these levels. Rather, I expect that to happen.

(2) Even if we bounce here, overall advantage remains with the bears here. Take those gains quickly or keep a decent cash position until 1295 gets broken. Before that, I also expect the downtrend line shown in the chart above to act as resistance.

Following is the corresponding NASDAQ chart with important support and resistance levels marked for next week.

Take care and good luck!

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