Will Support Contain Further Declines?

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Will the dramatic news events of last week have a lasting impact on stock prices? Headlines had a direct impact on daily stock prices last week when on Monday the market rallied at the opening on the death of Osama bin Laden but then fell back late in the day (Event #1) closing lower. It fell on Thursday's weak jobs numbers (Event #2), but then rose on Friday's lower-than-expected unemployment report (Event #3).  The result of last week's headlines was that while good news was initially treated with buying, the market turned lower, and even Friday's better unemployment numbers didn't have enough impact to attract buyers that could overcome the losses of Wednesday and Thursday. The Dow closed lower than the prior week by 172 points. This is meaningful to technicians who look for market reactions that are opposite to what would ordinarily be expected, since a negative reaction to positive news can be an indication that the overall market is overbought. But we need not depend on subjective interpretation of news for our analysis. Such overbought/oversold conditions are graphically illustrated by our internal indicators. Last week, the slow stochastic flashed a short-term sell signal on Wednesday when the red (fast line) crossed through the blue (slow line) of the indicator — a clear and unbiased response to market conditions. We may see more selling this week, but there is a broad area of support from 12,000 on the Dow to 12,460 that will more than likely hold further declines. And so it is the market's response to this important band of potential buying that will determine its long-term direction and not the daily headlines, no matter how dramatic they may seem. For one stock to buy on a pullback, see the Trade of the Day . Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net . View Survey