I wrote on the 21st January & 27th of January forecasting market decline in the short term outlining the following scenarios.

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We essentially have 5 scenarios

1. Today’s negative action halts today and builds a base at the intermediate support line
2. We experience further downside action to the medium term support line at 1072
3. We pullback to 38.2% of the July Trend (6 months)
4. Pull Back to Fibonacci 50, at 1015
5. Experience quite a serious correction releasing the tension of the March to date rally with a pull back to 980.

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Of those 5 scenarios I suggested 2, 3 and 4 were the most likely.

So what happened?

1. Today’s negative action halts today and builds a base at the intermediate support line
2. We experience further downside action to the medium term support line at 1072 – Downside Target hit – 4th February 2010
3. We pullback to 38.2% of the July Trend (6 months) – Downside Target hit – 5th February 2010
4. Pull Back to Fibonacci 50, at 1015 - This could still potentially happen Wordens TSV & MoneyStream indicators are still in a negative divergences, however RSI 14 is starting to look positive.
5. Experience quite a serious correction releasing the tension of the March to date rally with a pull back to 980 – 1000 is a strong psychological support & resistance  level for the S&P500, I would not expect a break of this line today.  However if this was broken we may see considerable decline thereafter.

In this chart you can see that RSI is starting to show a slight positive divergence, while TSV is confirming the downtrend by remaining negative.  The move down also occurred on higher volume, which as we know a move down on higher volume is very bearish.

Where Now for the US Markets?

TeleChart2007 chart courtesy of Worden Brothers, Inc.

The market participants are not sure where to go from here.  I have seen no clear sign of a change in trend to the positive side.  Be careful with your trading until we get a clear signal that this decline will reverse.

Name: Barry D. Moore

Bio: Certified Technical Analyst (Stock Market Technical Analyst), Full Member of Society of Technical Analysts (STA) Level II CFTe (Certified Financial Technician), independent trader, author, trainer & blogger.

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