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Next Minor vs. Major move

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We are very quickly going to find out about how real the recent rally was. The market looks to open down big as coalition forces approach Baghdad and fears mount of WMD use by a desperate Iraqi Republican guard. Couple that with a substantial amount of trapped longs and mounting economic and corporate profit fears and we get some nasty action.

From my vantage point, what we have is a consolidation of a rally that created a dramatic overbought condition in the context of a clear near-term trading range.

This chart from last week highlights range

Over the recent week, I have outlined that the next major move should be determined by which way the market breaks out of the current trading range. In other words, this decline should still be considered a "trade in the range" vs. the "next major move." If the three lows that mark the bottom of the range are for real, the market should garner some significant buying as the indicators move toward near-term oversold and prices approach the bottom of the range. As the previous chart shows, the SPX is still a good distance from both, which means buying the market just because it is down over the recent week and is opening down big today doesn't necessarily mean it should be bought from either a trading or investing perspective.

No positions in stocks mentioned.
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