The major market averages took another tumble yesterday on lower but still above average volume. The lower volume was due in part to the Columbus Day holiday with the stock market open but the bond market closed for the day. All major averages have breached and undercut their 200-day moving averages as well as their early August lows. This time, the market has ignored oversold or contrarian indicators that had a good track record since QE3 began in January 2013 up until now, which tells us that the market is readying for an end to QE3 in addition to economic issues in Europe and a semiconductor index that started dropping precipitously on weak earnings news from major companies in this space. Expect a continuation of elevated volatility in the days ahead, both on the upside and downside.
Given the position of the indexes, a reaction rally from here is possible, and this morning the futures are up sharply. As well, short-sale target Tesla Motors (TSLA) hit its 40-week/200-day moving average yesterday, which was our initial downside price target for the stock. LinkedIn (LNKD), another short-sale target, also "kissed" its 200-day moving average. In both cases the action sets up at least a short-term bounce that should be watched for as it moves up into potential resistance.
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