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Minyanville's T3 Daily Recap: Market Falls Sharply Through August Lows

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Technical damage has been adding up for weeks, but last week's relative weakness from former leading stocks was the last straw.

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The market's recent decline continued Monday, not buoyed at all by the suggestion of possible buying at the beginning of the fourth quarter. The Nasdaq remained the weakest index, dropping 3.3% (and the closing bell didn't put a halt to the selling, either). Morgan Stanley (MS), which fell 8%, epitomized a weak banking sector that is pulling the market underwater.

Technical damage has been adding up for weeks, but last week's relative weakness from former leading stocks was the last straw. Last Wednesday, many former leaders were negative while the Dow was still up 250 points. Stocks like Apple (AAPL), Amazon.com (AMZN), Baidu.com (BIDU), Sina (SINA), Google (GOOG), and Priceline.com (PCLN), among others, all broke upper areas well before the market reversed.

A series of lower highs in the indexes, combined with this relative weakness from leading stocks, were the signs that more downside was in store. The only thing that gave traders pause was possible window dressing around the beginning of a new quarter, and that turned out to be a non-factor.

Today we broke below 1120 and closed below the August 9 low of the Summer 1101. The 8-week range that traders have been using as a framework to trade against is in the process of getting resolved to the downside. If you're short this market I would look to cover into a cascade lower, where the 1070 area will be the next support. Major support is last summer's low of 1010-1040.



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