Stock Market Commentary: Take Profits

Whether todays' sell off was simply the expectation of a seasonal rough September, or the accumulation of months of topping action is too early to say. Tuesday was a clear distribution day with a wide intraday swing in the markets. The day started like every post-sell off with a rally - a rally which usually holds ground and pushes higher over the course of the week. But today was different, today the rally burned and burned out fast.

Anybody with profits to take, particularly for those who bought July lows, will have likely taken some or most of their profits. With the loss of 20-day MAs it may be hard for buyers to come in from the sideline, particularly when most sideline money is likely already in the market. Shorts will now use these 20-day MAs to build a position so more supply can be expected on any advance to these levels.

But it's not all doom and gloom. Looking at the broader context of the rising price channels it's clear Tuesday's action is noise in the larger scheme of things. The Nasdaq's 50-day MA, given its position inside the channel, will be an important test prior to Labor day.

The Dow crashed below its 20-day MA and will soon see a test of August reaction lows well before its 50-day MA is reached.

But it's the weaker small caps which need to watched most closely; its 50-day MA currently hugs the bullish rising channel. A break of these support levels and it could get very ugly for all the indices very quickly.

September is here...

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, stock charts, watchlist, multi-currency portfolio manager and strategy builder website. Forex data available too.

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