Tuesday, October 28, 2008

Much work to do

The way the declines are shaping up, it is unlikely we will have the double bottom as initially suggested last week. For example, the sharp declining resistance line in the Russell 2000 should be a straightforward break - but the other lurking around 500 will be less so, and even then there is still the additional 75 points needed to mount a challenge on the neckline of a potential bottom. Only when that breaks would there be confirmation bottom. This looks a big ask for an index requiring a 30% rally just to get to the neckline....

More likely is a second scenario bottom with a neckline around 500 and a retracement back to either the lows of today, or whatever low gets tagged over the coming week.

Large caps have available support to look too and haven't completely eliminated the double bottom scenario but with stochastics maintaining their bearish divergence and the small caps in freefall it is hard not to see large caps following suit lower.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website