The Stock Market: The Stock Market Crash in the Stock Market

Bullish double bottoms for Dow, TSX in stock market.  It appears that following several days of heavy selling pressure and yesterday’s big intraday battle between bulls and bears, markets appear to be stabilizing today.

Earlier in the week, steep downdrafts suggested that there still may have been quite a bit of capitulation selling and forced liquidations (margin calls and fund redemptions) overhanging the markets.

Yesterday’s titanic intraday battle between bulls and bears that drove a number of big market swings suggested, however, that sentiment may be starting to change. Late yesterday, indices such as the Dow Industrials (US30 CFD) and S&P/TSX 60 (Toronto60 CFD) completed bullish double bottoms. Since then, equities have been steadily climbing. This suggests that selling pressure may be easing and buyers may be cautiously starting to step in. Note that this type of action with buying seemingly slowly overcoming skepticism has the potential to create a firmer foundation for the market than a big short covering bear market rally like the one seen a couple of weeks ago, which tends to invite more selling.

Markets advancing despite the resumption in U.S. short selling may also be viewed as a sign of improving confidence. Positive earnings surprises from IBM (IBM) and Eastman Chemical (EMN) overnight may also help to reduce negative sentiment as they suggest that last quarter may not have been a complete wipeout. One risk that may continue to overhang the markets is the lack of lending, which may impact corporate and consumer activity in coming quarters. Interbank rates such as LIBOR have remained high despite central bank cuts, suggesting that access to credit remains difficult.

These conflicting dynamics in the market place may keep equity markets range bound through the rest of this week until additional developments suggest which direction the standoff may be broken. Current support and resistance levels appear near 9,100 and 9,400 for the Dow, 960 to 1,000 for the S&P 500 (SPX500 CFD) and 575 to 625 for the S&P/TSX 60.

Commodity markets have been mixed once again, but today’s action suggests that recent trends may be reversing for the moment. For example, gold and silver, which had been the strongest performers of late, have been retreating. This suggests that some of the fast flight to safety capital may be starting to move back out into other markets again. That being said, the inflationary potential of recent central bank and government actions may support longer-term bullish trends. Key support levels appear near $825/oz for gold and $10.00/oz for silver with resistance near $880/oz and $13.25/oz, respectively.

While energy commodities, such as crude oil and natural gas, appear to be stabilizing and copper has staged a small rebound toward $2.40/lb, grains appear to have attracted renewed interest today. In particular, corn and soybeans appear to have successfully tested $4/bushel and $9/bushel, respectively, while wheat appears to have completed a bear trap bottom reversal near $6/bushel. Initial resistance appears near $4.50 for corn, $6.60 for wheat and $10.00 for soybeans.

Upcoming Free Seminars:

In the coming weeks, Colin Cieszynski will be making a number of free presentations for accredited investors across Canada.

Location          Date                Time                Topic
Markham         Oct 9               6:30pm ET       Trading Techniques in Volatile
                                                                        Markets

Markham         Oct 18             2:20pm ET       Global Equity and Commodity
                                                                        Trading Opportunities