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Weekly Technical Comments by Art Huprich - Thursday Morning 11/06

"Despite leaving shortly for a regional conference speaking commitment and returning to the office next Monday, in light of yesterday’s tape action, I felt some comments were necessary.

Following a record Election Day rally, the DJIA recorded its largest post Election Day decline on record. Could yesterday’s decline been a function of “... sell the news” or “lock in some trading profits” mentality? That might be too simple. How about further pressure on hedge funds, as clients want their cash? That’s a better reason and one that is more indicative of the current market backdrop.

On the NYSE, volume contracted to 1.27 billion shares. There were 1933 net declining issues. Combined new 52-week lows on the NYSE and NASDAQ were 100 versus Tuesday’s total of 76. While I realize the following statement is going to send many of you into an uproar, I will state that “With the exception of the ratio of NYSE declining volume to advancing volume (negative 16-to-1), yesterday’s ‘internal’ readings didn’t support a 5% plus decline by the major indices.” Let the howling begin.

In any event, while I was expecting a “pause/pullback”, as expressed yesterday, I was not thinking in terms of an almost 500 point and 98 point one day decline by the DJIA and NASDAQ, respectively,…incredible. Speaking of incredible, during the entire 2000 to 2003 downturn, there were 26 such days in which the DJIA registered a 300-point-plus move. Currently, starting with the 335-point gain on September 18, 2007,” yesterday’s decline of 486 points was the 36th such day. So, in just over one year, the stock market has recorded 38% more 300-point-plus moves than it recorded in a little more than three years. I think this type of volatility will stay with us as we move closer to year end!
Conclusion

Within the context of an intermediate-term down trend by the SPX and DJIA and under the guise that intermediate-term changes in trend start with subtle short-term changes in trend, I am still of the opinion that the short-term chart configurations for the SPX and DJIA are “lateral / up.”

Resistance: SPX (952.77) = 1008, 1044. DJIA (9139.27) = 9654, 9794. NASDAQ (1681.64) = 1786, 1897.

Please realize that “lateral” means that further “retesting”, possibly multiple times, of the October 27-28 / October 10 lows is a possibility. Do I want it to happen? For the sake of many accounts that are over weighted in losing positions, no, I do not. Would it be healthy if there was a series of “retests?” Yes, it would be healthy, because 1) it would lead to the development of a bigger base, ala 2002-2003, 1998, 1987 and 2) it would likely increase the “fear factor.”

Support: SPX (952.77) = 923 (50% retracement of recent rally), 845 (10/28/08 low), 839 (10/10/08 low).

DJIA (9139.27) = 8768 (50% retracement of recent rally), 8143 (10/27/08 low), 7882 (10/10/08 low).

NASDAQ (1681.64) = 1640 (50% retracement of recent rally), 1506 - 1493.

Besides the support and resistance levels, let me leave you with another short-term guidepost, specifically, the CBOE SPX Volatility Index (VIX/54.56).

When the VIX broke support at 60 recently, the stock market rallied. Following the breakdown, the VIX pulled back to support, defined as both its 50-DMA and a multi-week up trend line. Consequently, if the VIX can take out support at 44.25, stocks will rally further. Alternatively, initial resistance for the VIX exists in the middle to upper 60 area. A move through resistance would imply further pressure on stocks. A move to resistance and an inability to get through it would signal some potential stability by the major averages."

For further technical Commentary and Charts:

http://www.rjf.com/technical_commentary.asp

George.

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