Aw, Do We Have to Test the Lows?

Sorry about the late start, reality intruded. The DJIA was recently at 8945.72 down 365.27 and the S&P 500 was at 950.50 down 47.51. From MarketBeat:

Almost immediately after the market’s historic rebound Monday, investors began to dread the inevitable: a so-called “test” of the previous lows, an occurrence that generally follows just about all massive selloffs.

But the idea of a “test” is one that’s easily misinterpreted. For a variety of reasons, stocks don’t move in straight lines, but this does not mean that the major indexes do not have to descend to the previous levels reached in order for investors to conclude that a test has taken place.

“Some people think it has to go right back to the low, but it could be shallow, or deep, or a lower low,” says Phil Roth, chief technical strategist at Miller Tabak. “At this point, a test started yesterday. How deep it’s going to be, I don’t have the answer to that yet.”

Friday, the Standard & Poor’s 500-stock index bottomed out at 839.80, and the Dow industrials hit a low of 7882.51, before both indexes recovered to close out the session. William Gibson, managing director of research at Nollenberger Capital Markets, says he’s looking for the half-way point between Tuesday’s high and Friday’s low — which comes to 942.06 on the S&P — as a harbinger that a “test is underway.”>>>MORE