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Technical Analysis: Deeply Oversold

This is one of the most deeply oversold markets in U.S. history (more on that tomorrow night), but so far nothing has been able to halt the decline for long. It will continue until either sellers are washed out or until stocks reach valuations compelling enough to encourage bargain hunting.

We may be closing in on such a support zone.

A look at 11-year charts of the major indexes (see below) show that on the Dow and S&P, we are entering a support zone that has marked a number of major lows dating back to the 2000-2002 bear market and the 1997-1998 emerging markets crisis.

On the Dow, that support zone is 7200-8000. On the S&P, it's 768-855. And on the Nasdaq, it starts at 1521.

Those are levels that traders have long been comfortable with, and some support is likely there.

But uncertainty will likely continue for some time, particularly with credit conditions worsening despite historic interventions by governments around the world.

To the upside, 9043 and 9500-9700 are resistance on the Dow, 954, 1000 and 1060 on the S&P, and 1750-1800 on the Nasdaq.

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