Stock Market Fire Sale Says Market Timer Frank Kollar

January 29, 2010 (FinancialWire) (By Frank Kollar)

Both the S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (NYSE: SPY) continued to lose ground this week after last week’s 5% declines.

On Wednesday the market rallied but even with the likely affirmation for Paul Bernanke seemingly secured, the SPX and SPY fell an additional 1.2% on Thursday, January 28.

This is increasingly looking like a market headed for dramatically lower lows.

Market tops are seldom easy to spot. Market bottoms have a V shape when selling is exhausted but market tops rarely just go straight down. They have failed rallies, periods of consolidation, and traders are often fooled into buying what appear to be bullish reversals that wind up failing.

Several support levels have been broken including the 50-day moving average; the 50% retracement support for the October-January rally at SPX 1774 fell on Thursday. The December lows at SPX 1088 and SPY 108.8 were also broken on Thursday.

We would be very careful here. Aggressive traders should be on the sidelines watching for a failed rally to jump into bearish positions. Conservative traders just need to follow their trading plans and exit if and when the plan signals an exit. Do not second guess your trading plan!

If this turns into a typical correction there will likely be three waves in an ABC decline before a bottom is reached. We are only in the declining Wave A now. There is probably a rally Wave B ahead and then a third Wave C down. How far down, and how many bearish patterns remain ahead, cannot yet be forecasted.

If in fact we are headed for a big decline as some market forecasters are stating, major support levels will fall first, such as at SPX 1088 and SPY 108.8 (broken in Thursday’s sell off). After this is critical support at SPX 1036 and SPY 103.50.

The http://www.fibtimer.com ETF Strategy has a position in the S&P 500 SPYDRs.

Kollar is editor and chief analyst at FibTimer.com (http://www.fibtimer.com) which offers market timing strategies for S&P and Nasdaq index fund traders, as well as bond, gold, small cap, sector, ETF and stock trading strategies.

Kollar’s research has shown that the financial markets are in tradable trends approximately 80 percent of the time. FibTimer strategies define trends and trade them in both advancing and declining markets. Caring nothing about what newscasters say or what the latest economic indicator predicts, trends are where the profits are, and that is where FibTimer is.

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