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Even though there is still a little more room for the indices to fall, we believe that the stock market is closing in on a bottom. Most indices are getting extremely close to their 200 day moving averages and we believe that if the fall does not end here, it will end only a few percent lower.
You can see from the first chart of QQQQ how the powerful support in the 43 area has already been broken. This was a signal to expect a fall to at least the 41 area. When such a crucial area is broken after such a long consolidation you could easily expect the index to fall at least the height of the consolidation. This would put QQQQ in the 40 or 41 area. 200 day moving average support is at 41, while strong horizontal support is at 40.
SMH is currently sitting on its 200 day moving average, but moving averages have had little impact on the ETF for several months. Powerful support lies in the 33 area, just a percent and a half below where we currently sit. A break of 33 would bring the ETF to either 32.50 or 32. If SMH does get to 32, we do not foresee a move lower.
On the chart of IWM there are two sets of Fibonacci retracements. The first one shows the move from October of 2005 to May of 2006. You can see that the fall from May ended just a bit lower than the 61.8% retracement. If the ETF falls to the 61.8% retracement during this decline we can expect the bottom in the 72 area. 200 day moving average support is just below 74. If IWM does not reverse off of its 200 day and form the bottom there, we believe it will fall to the 72 area. We have also added a horizontal line on the chart to show the horizontal support in the 72 area.
Most likely the stock market will continue to fall a bit deeper, but we believe that we are toward the end of the decline. We would suggest adding at the 200 day moving average and the support areas mentioned tonight below the 200 day (if the ETFs break their 200 day moving averages) for subscribers who add to their positions in the middle of a signal.
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