How Low Will This Market Go?

A fall in the euro sent equity and commodity markets into a downward spiral
yesterday. Sentiment against the euro strengthened following Germany's stand
that its government is against raising the lending limit for a euro zone
bailout. In response, Italy's 10-year bond yield rose 7%-plus, and Spain and
France saw their bond yields jump as well. The U.S. dollar rose, of course, and
the rise was accentuated by a series of better-than-expected economic reports.
Commodities fell sharply in response to the stronger dollar. The CRB Index fell
3.4%, and gold settled at $1,587.70 an ounce, down 4.6%, and silver lost 7.6%.
The Dow Jones Industrial Average closed at 11,823, off 1.1%, the S&P 500 ended
at 1,212, down 1.13%, and the Nasdaq closed at 2,539, down 1.55%. The NYSE
traded 928 million shares, and the Nasdaq crossed 512 million. Decliners were
ahead of advancers on the Big Board by 3-to-1 and on the Nasdaq by 2-to-1.
Yesterday, every major index violated its near-term support as the dollar
rocketed to new highs. Click to Enlarge The breakdown of the S&P 500 is
significant because it confirmed the failure of the index to break higher at its
bearish resistance line (June/July, October and November highs); it turned down
from its 200-day moving average a confirmation that the long-term bear market
is intact; and it crushed the near-term support provided by the conjunction of
the 20-day and 50-day moving averages. The question is: How low will it go? The
answer may surprise you: Not very far, at least initially. There is a broad band
of support at 1,124 to 1,225 that will more than likely slow the decline, and
the uptrend line of a major trading triangle rests at 1,175. Additionally, the
Fibonacci numbers off of the November low to the December are: 50% = 1,212
(yesterday's close), 61.8% = 1,200.