Thursday, January 10, 2008

BARRON'S--Bad News: Bears Take Control

From Michael Kahn's "Getting Technical" column:

FROM A TECHNICAL PERSPECTIVE, something very important happened in the stock market over the past week. Key support levels on all major indexes have been broken to the downside. Whether you think the economy will rebound or not, the stock market is signaling that the pain is not over.

To be sure, after the losing streak the market has had since late last month, there are a few reasons why prices can rebound in the short term. One of them comes from momentum indicators, such as the relative strength index, that show selling pressures have let up a bit despite the trip to new multimonth lows.

But just because there are reasons to go up or down does not mean the market will oblige. Just last August 16, when the lid blew off the subprime crisis, the Dow Jones Industrial Average plunged more than 300 points intraday in what looked like a major breakdown (see Chart 1). The bull market appeared to have been broken....MUCH MORE