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Capitulation? Or a Bounce to Sell Into Now?

The S&P 500 is hanging onto its lower bollinger band (BB band), a place that often sees snap backs rallies. In 2013, the market rarely stayed at the bottom of its BB for too long. However, during a correction (not just the small pull-backs to which we have become accustomed), the market can stay oversold, dragging the BB band down with it.

That's exactly what the market did in February of this year. That's what it has done with the PowerShares (QQQ), which tracks the Nasdaq 100 Index, and that's what has happened with the iShares Russell 2000  (IWM), which tracks the Russell 2000 Index. But this isn't a reason to go long in and of itself.

Last week the S&P 500 has finally begun to show the same weakness that has been exhibited for over a month in riskier asset classes such as the biotech and small cap sector.

After last week's selling, it is becoming more probable that the S&P will drop to its 200-day moving average in the near term. Currently that figure stands at 1,761.43. However, bear in mind if it does happen it likely will not occur in one straight line down. 

With a break of that double bottom on the Nasdaq at 84.11, we likely visit the 200-day moving average, currently at 82.60. 

The Russell 2000 closed slightly above the 200-day moving average. If it fails to hold, the next level of support is around 107. 

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