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Let's Scalp Some Quick Profits Off the Coming Bounce

By Jeff Clark
Tuesday, January 8, 2008

Well, here we go again...
 
On December 18, I wrote:
 
Yesterday's market action was poor. The S&P 500 dropped below the 1,465 support level. That negates the recent bullish series of higher lows and increases the odds of dropping down to test the November lows at about 1,405.
 
But first... we bounce.
 
And bounce we did. The S&P 500 clawed its way back to 1,497 just in time for Christmas. But those gains disappeared as fast as Aunt Edith's holiday sugar cookies, and the S&P did indeed test the November lows yesterday.
 
Now, we find ourselves in a situation similar to December 18. The chart of the S&P 500 has violated an important technical support level, and that argues for lower stock prices in the days ahead.
 
But first... we bounce.
 
Here's the S&P 500 plotted against its 20-day exponential moving average...
 
 
Remember, the 20-day EMA acts like a magnet for the S&P 500 in the short term. The index rarely strays more than 30 points above or below the 20-day EMA before reversing and coming back to test the line.
 
As of yesterday, the S&P 500 was more than 40 points below the line. So we're due for another bounce. And I'm guessing it will look a lot like the bounce we saw just before Christmas.
 
The S&P should rally back up to, and maybe slightly over, the 1,460 level. But, once again, it will be only a bounce. The markets sustained a lot of technical damage last week, and it looks like they have a little more work to do on the downside. The next obvious support zone is 1,375... That's where the index bottomed last March, and it's also the intraday low from the August decline.
 
Right now, aggressive traders can try to scalp a few points by playing the upside. But don't be shy about taking profits. We have a little lower to go.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%