Lows Tested, Now What?

Editor's Note:

I have been warning readers that the market would test its "flash crash" lows. In some cases the major indices and sector indices have exceeded these lows. The S&P 500 has tested its low for 2010 and bounced. This is encouraging but only on a short-term basis. The market has reached oversold levels and this appears to be a technical bounce from support. It could be a bounce that lasts several days but now prior support levels will become new resistance levels. The short-term trend for stocks is still down.

I remain very cautious when it comes to launching new long-term bullish positions but I'm not quite ready yet to start buying long-term bearish positions either. Thus far the S&P 500 has given up about 12%. Technically a bear-market doesn't begin until an index has lost 20%. For the S&P 500 that would mean a decline toward the 975 area.

On a very short-term basis it looks like stocks could rally if we see some follow through on Tuesday's intraday bounce. Unfortunately, I think traders will eventually sell the rally. Nimble traders may want to consider new positions on CLF, a watch list candidate that graduated to the play list. I suspect this mining name could see a short-term rally. I would also take a look at FCX although you may want to wait for a move over $70 before launching positions in this stock (remember, just a short-term move).

The next LEAPStraders newsletters is only three (trading) days away. Let's see what happens between now and the weekend before we add any new candidates or watch list ideas.