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I grew up outside of Syracuse, NY and went to college in Vermont for two years - but I don't remember being as cold as I was walking from the garage to work today. Maybe it is age, or maybe it is just that cold for this area of the country. As usual, as I drove in this morning with the Queen of Car pooling Linda, we were wishing that we could find a way to wake up. Like anything else in life, be careful what you wish for because you might just get it...I spilled coffee on her as she got out of the car. Sorry, but got you to wake up!

Anyway, back to the cold realities of the financial markets. While it didn't feel like a huge move lower, the angst in yesterday's drop was noticeable nonetheless. What I took special note of was the absolute lack of buying interest. One of the technical services I get is Lowry's report, which measures many aspects of the market including an index of buying power and selling pressure. While this is just one barometer they look at, in today's report, buying power dipped below the October low. THAT ain't good, especially when one considers all the other reasons for the market to drop. It is enough to make you want to sell everything and call it a day.

Hold on one second! Isn't that exactly what happens at the bottom end of the near-term range in the twilight zone? Everything begins to look terrible and the market appears poised to break down. Remember just a few sessions ago when all signs pointed to a clear breakout? It was at that point we discussed how traders look for reasons to take profits in a market that is overbought and into resistance and look for reasons to buy a market that is oversold and into support. So where do we stand right now?

The market is approaching, but not at near-term support (875ish on S&P 500), and the indicators are no longer overbought, but are yet to reach into oversold. The way things are going both could happen over the next couple days. While that could create the environment for another "bounce," this is the point where we must again consider the intermediate-term backdrop before becoming overly excited. The market nearing near-term support levels and becoming oversold does not change any of the issues that have weighed on stocks over the past few quarters; it simply means there could be a bounce back to the upper end of the range. If aggressive traders buy near the lower end of the range and sell near the upper end, that might be a nice gain, but timing has to be near perfect and we all know the odds of that.

I have said a number of times in that past few weeks that the best case for a market that is in a downtrend, had become overbought and lost momentum - is that it works off the overbought condition by going sideways. Until the downtrend is reversed, it is difficult to expect anything more than a temporary bounce at any given moment. The more oversold and extended to the downside the market gets, the more significant the snap back rally could be ala, July and October lows and subsequent rallies.

As a buddy of mine constantly reminds me, let's worry about today and then handle the rest of our lives beginning tomorrow. Right now, the market is approaching an important test of near-term support and if the market is still in the twilight zone, it should hold. I am careful to use the word IF because we only know if the transition from twilight zone to reality trade happens once support or resistance in the range is meaningfully breached.

Have a great day.
Hey Casey, where is my hat and scarf? I am losing a lot of heat up top if you know what I mean!
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