Another round of fear has hit the markets, with worries now that the Dow is hitting fresh lows (we could honestly careless about this index as it is price weighted). The indices of great importance though is the S&P 500 and NASDAQ. The NASDAQ is hanging strong – as it has not seen near the breakdown that the S&P has. The S&P did test the November lows, and held its own once the PPT decided to stymie fears of a Fed take over of Citigroup (C) and Bank of America (BAC).

The leg-down that we currently are on, could extend itself further, however, conditions are prime for a bounce – though we doubt that however great the bounce may be, that there is any legitimate chance it will be enough to change the bearish sentiment pouncing on this market.

Two levels to consider: 1) the 800 mark on the S&P and then the 850. Both of these levels provide overhead resistance, and you’re probably going to see a number of giddy shorts reload at the 800 mark. However, you’re better off playing the trend line connected by the highs in January and February.

The last time we were at both this price level and this over sold, the S&P rallied from 750 to 900 – a 20% gain in five days. While we are not expecting the same kind of price move, we do believe that shorting at 800 is premature.

Here’s the NASDAQ and S&P charts…



An indicator measuring the number of stocks trading above/below their 50-day moving average. We are no where near the levels experienced in October and November.