Morning Market Review 17/3/2011

First, some raw stats.

America:

• Dow Industrials: -2.04%
• Dow Transports: -1.39%
• Russell 2000: -1.19%
• SP500: -1.95%
• Nasdaq100: -2.51%

Europe:

• London: -1.7%
• France: -2.23%
• Germany -2.01%.

The main indices in America (Dow Industrials, SP500, Nasdaq) began to show real fear last night, accelerating to the downside on increasing volumes.

On the Dow Industrials, a major support level lies at 11440. The Index finished last night at 11603. Another 150 point drop would put it close.

The VXX (ETF for the VIX, Fear Index) accelerated to the upside and reached resistance. The VIX operates inversely to the general market. UP is bad for the general market. It still hasn't shown extreme levels yet - up around the 50 level. It may need to reach those levels before a halt to this decline occurs.

On the positive side - the small caps (Russell 2000) is behaving somewhat better than the broad market (SP500) and the big caps (Dow Industrials). Just keep that in perspective - it is still recording negative values. So relative outperformance is just a small comfort.

My suggestion recently about the Australian market needing to show Oversold readings on the Weekly Charts also applies to the American market. We're not there yet. The Stochastic on a Weekly Chart of the Dow Industrials is currently reading at 57.7 - still well above an oversold reading below 20. (The Stochastic ranges in a scale from 0-100.)

All of that adds up to some hope of a relief rally, but I think that's all it will be. A proverbial dead-cat bounce. I think there's so much downward momentum now that we need to see some extreme oversold readings before the market will call it a day on this correction.

Just an aside - I haven't read anybody calling for a dead-cat bounce (except me). That probably means that the likelihood of one occurring is extremely high. :) That's got nothing to do with an overly inflated notion of my predictive powers - just the old contrarian in me coming out.

Good luck

Red