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S&P 500 saw a brutal correction last week. Now the big question: Where is the support and how deep the correction we are looking at?
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Charting S&P500: Where is the Support?Jan 24 2013Deepak Singhwww.stateofthemarket.net
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Panic on the Screen
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S&P500 Daily Chart
Strong Uptrend: Pullback to 100 dma = Buying Opportunity?
The support of 100 dma working since last 12 months
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THE BIG QUESTION
Will Bulls come and buy the dips near 1760-1775 band OR
Are we looking at deeper correction?
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What IF: There is a deeper correction
Trading Rule: When an Index fails to hold established support – it falls to next level of
established support
When markets are in strong Uptrend: there is tendency of False Breakdown i.e. Create Panic, Bounce Back and Resume Uptrend.
It means S&P500 can breakdown below 100 dma and then bounce back and resume uptrend. This
is where it becomes tricky
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S&P500 Weekly Chart
Next established level of Support: 50 week ma
In 2012: S&P500 used to hold 50 week ma as support area.
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Deeper Correction
If S&P500 breaks down below 1760-1775: then it can collapse to levels of 1680 i.e. 50 week ma and still be in Bull Market
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Breakout Bull Market S&P500 managed a stunning breakout when it moved past Double top
resistance of 1540 which indices held for 12 years
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The Big QUESTION The Breakout Level of 1540 is now the rock solid support level for S&P500.
Can indices correct 16% from 1850 to test this as support?
Summary
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Are we looking at Deeper correction to test 50 week ma of 1680 as support?
Are we looking at Normal Healthy pullback to 100 dma i.e. range of 1760-1775?
Summary
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Are we looking at Dramatic Sell off of magnitude of 16% from HIGHS to test 1540-
1560 as support?
LETS TAKE one level at a time. Right now: we need to focus on 1760-1775 as first level of support
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Trade the market as you see it
Trends Persist longer than one can imagine
Benefit of Doubt should go to Bulls i.e. Do not
rule out False Breakdown
Corrections are Brutal and Swift. Any
breakdown below 1760 will be sharp and swift
As always, there is risk in the market – there is no guarantee
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Thank You
• Disclaimer - The state of the market presentation is Deepak's perspective on the market. The presentation is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this presentation you agree to make no trade relying in whole or in part on the comments of the writers
• Chart Source: Chartalert.com and Yahoo Charts
• For Feedback: Send email to [email protected]
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