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Technical Analysis: Stunning Turnaround

Quite a recovery today. About the closest precedent in this bear market was the mid-January low (see first chart below), which wound up holding for a very choppy six months.

Will this low do as well or better? Time will tell, but there are a number of positives to build on here.

For starters, we broke a much bigger trading range here before reversing back up; that could encourage some follow-through buying and help cement the low. But now we need to see that follow-through buying show up. The next couple of days could be critical, as redemption requests hit hedge funds tomorrow and traders see what comes out of the G20 financial summit.

But regardless of how the next few days turn out, the economy is facing significant headwinds, and it would be surprising if any stock market recovery didn't reflect that.

The S&P (second chart) fell below critical support at 839.8, going all the way to 820.13 before reversing. At this point, we'd like to see 850 hold as support; another break below that could bring the 2002-2003 lows of 768-789 into play. 900 and 875 are first supports, and resistance is 925, 952 and 985.

The Dow (third chart) held both its intraday and closing lows of 7882.51 and 8175.77, respectively. Support is 8650, 8500 and 8200, and resistance is 8890, 9160 and 9550.

The Nasdaq (fourth chart) found support at a falling trendline before reversing 168 points the other way. 1550 and 1500 are support, and resistance is 1604, 1640, 1680 and 1720.

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