- Technical-Analytical Market Commentary -

November 18, 2010 (FinancialWire) (http://www.financialwire.net/) (By Dr. Joe Duarte) (Entire post at http://www.investrendsyndications.net/12-content/manl/duarte/2010/11/php/18.php) — The S&P 500 SPDR ETF (SPY) closed below 120 on 11-17. Yet, the market’s action suggests that the pullback may be close to being over, although it’s not a certainty.

The U.S. stock market pulled back to levels not seen since May of 2010. Yet, if this support level holds, we could see a resumption of the rally.

The post election blues hit stocks over the last week, taking 3.5% out of the S&P 500's gains since the rally started in July. The rally was good for a 21% gain. So if the last few days are put in perspective, not a whole lot of gains have evaporated.

Yet, it feels bad when the market drops for several days in a row. And it feels worse when stop losses get hit, even if you've got some decent gains in the stocks that get stopped out.

So at times like these, it makes sense to look at the charts and see where things stand.

The S&P 500 (SPX) is acting in a very textbook technical fashion. The index rallied above the Bollinger Bands last week. When prices move above or below these bands, also known as volatility bands, they eventually come back inside the envelopes that are conscribed by the band.

The next move is usually for prices to test the 20-day moving average, which they did, and where they failed. The next move is to test the support of the lower Bollinger Band, where the index will either find support or fail, by moving outside the band, or if the bands turn lower, prices will follow the band lower.

At this point, the bands are starting to constrict. When the bands constrict it signals that volatility is slowing and that a consolidation is likely, at least in the short term. The fact that prices are now near the 50-day moving average, and the lower Bollinger Band also signal that there are two key support levels that are about to be tested.

If the S&P breaks below both of these key support levels, it will be a sign of increasing weakness in the market.

As it stands right now, a break below the 50-day moving average, if it is not reversed quickly, could lead to a test of the 1120-1140 trading band.

The stock market is pulling back after a 21% rally since July. So far the S&P 500 is off 3.5% or so from the top near 1221. The market is acting in textbook fashion, where moving average and Bollinger Band analysis is holding up very well.

As things stand right now, each open position, short or long, should be managed on its own merits. If the sell stop gets hit, you're out of the position. If something is working stick with it until the sell stop gets hit.

As the trend sorts itself out, we'll be adding new positions. For now, it's a good time to be patient

(Go to http://www.financialwire.net/?s=drtjby to see more commentaries by Dr. Joe Duarte, and go to http://www.financialwire.net/2010/05/01/about-duarte/ for more about Dr. Duarte.)

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