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It's Friday, And Everyone's A Technical Analyst

 June 01, 2012 12:05 PM


by Michael Tarsala, CMT

Everyone is suddenly a technical analyst on volatile days with lots of negative headlines.

Don't listen to the intraday chatter, unless the person doing the talking is looking at daily and weekly closing prices.

There's no denying Friday's storm of bad markets news. A disappointing jobs report. Bad economic data from both Europe and China. A slide in the U.S. manufacturing data.

None of that came as a massive shock, though. There has been no big technical damage done in the long-term timeframe yet.

Volatility is rising again today, you bet. But investors need to keep some perspective. This is the chart that investors will want to watch:

 

[Related -The S&P 500 Just Completed an Impressive 477-Day Run Above its 200-DMA]

 

 Source: Stockcharts.com

 We've been talking about the level marked by the black bars above for nearly a month now.

There's no hocus-pocus about it. It's simply a concentrated clump of past buying and selling. Those areas tend to act as magnets, pulling prices toward that area.

[Related -Gravity Returns - The Market Drops Nearly 5% in 3 Days]

And that's exactly what happened. So a test of the "magnet" area is not a surprise.

A daily close -- and for investors, a WEEKLY close, below that key support area would be meaningful, and yes, more negative. There's not much volume support if prices slip below it, which could bring more volatility and more selling.

Will we see a breakdown?

I have a gut feeling it'll hold for now.

But if you're a long-term investor, just ignore my gut.

Watch the daily and weekly closing prices. And have a plan in place that takes into account a real turn for the worse.

If you have questions or if you want to make sure you have the right plan in place, talk to us. We can help.

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.

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