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Technical Analysis: Bulls Take A Tumble

Given the tough resistance the indexes were facing and the lack of upside buying pressure to signal a major bottom, today's sell-off was painful but not surprising.

Ideally, the bulls will regroup and put together the kind of forceful buying that would cement a bottom, but it's hard to imagine what the impetus for that would be. Still, with sentiment as bad as it is (49.4% bears in the Investors Intelligence survey, to just 29.2% bulls), it might not take much of a spark to make that happen.

The Dow (first chart below) broke through a lot of support today. Next support is 11,300, 11,250 and 11,123, and resistance is 11,400, 11,600 and 11,731-11,750.

The S&P (second chart) has important support at 1240 and 1234, and resistance is 1257, 1276, 1292 and 1304.

The Nasdaq (third chart) has support at 2270, 2260 and 2250, and resistance is 2300, 2320, 2330 and 2350.

Finally, we should note all the discussion lately about the SEC's decision a year ago to remove the uptick rule restricting shorting — a move that came just before the start of the market crisis last July. We said nearly seven months ago that the decision might be contributing to volatility and would need to be revisited. Given the inauspicious beginning to the change, the SEC would be well advised to reinstate the Depression-era rule, if only to restore investor confidence.

Paul Shread is a Chartered Market Technician (CMT) and member of the Market Technicians Association.