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This Market's No Honeymoon

This market is like a small child: Take your eyes off it for just a few days, as I did this past week, and whack! It gets into all sorts of trouble. There is one good thing we can say about this week's action; it has relieved the overbought condition in the market. That puts us back to an oversold reading. That's the good news.

The bad news is that this smash has managed to roll over many of the previously positive indicators we've been watching. That typically means that we must start the process of holding on the downside all over again.

The number of stocks making new highs was meager at best during this entire rally, but I was willing to overlook that since when we looked at that indicator on a momentum basis, it was still rising. As long as the 10-day moving average of new highs minus new lows was rising, the general market direction was higher. Tuesday's action reversed that indicator.

Then there's the

McClellan Summation Index

, which I calculated last Friday, just prior to my departure, as able to withstand three more down days. A minor correction would keep this indicator positive. We have since seen five days of negative advance/decline readings, thus rolling that indicator over as well.

As you can see, these two indicators do not tend to turn on a dime, so if we rally from here it would take several days of very positive advance/decline and high/low figures to turn them back to the upside. A simple oversold rally will not turn these indicators around.

However, all is not lost. Aside from the current oversold condition, the financials did not seem to want to participate actively on the downside. In fact, the

New York Financial Index

outperformed the

S&P 500

yesterday. Out of the many bank stocks I chart, most did not trade lower than Wednesday's lows.

For example,

J.P. Morgan

(JPM) - Get Report

held its 128 level, and

NationsBank

(NB)

is still a point above the low it made earlier in the week. While I tend to prefer to see more than one day's action to feel comfortable saying these stocks held, it is certainly the first step toward renewing this rally.

The

Dow Jones Utilities

, which began their descent a few weeks ago, have also refused to break to a new low, and are in fact holding at a very important long-term uptrend line.

As for individual stocks, I no longer have a column titled "tired," as those tired stocks have seen their share of profit-taking. I now have a new column, "enough." This is for those stocks that have come down far enough and are either sitting at or very close to support, or at critical uptrend lines.

These "enough" charts are not all positive charts. In some cases they are good charts that have seen enough profit-taking to appear buyable again. Others are not good charts but seem to have come down far enough for now. Those are the stocks that should be sold into their rallies.

In the "enough" column I have written down

Merck

(MRK) - Get Report

, a good chart, as coming into some support here;

Sears

(S) - Get Report

, a negative chart, is at support and sitting on a good trend line for now;

DuPont

(DD) - Get Report

, also negative, should hold this support level, too;

Wal-Mart

(WMT) - Get Report

, a still-positive chart, may be vulnerable to 60-62 but that seems enough for now; and

AMR

(AMR)

seems to want to hold its 72 support level for now. While I'm not so sure I trust

Coke

(KO) - Get Report

to hold this easily, with such little damage done and without a major whack, it is sitting on an important uptrend line worth noting.

An example of a negative "enough" chart is

Limited

(LTD)

TST Recommends

. This stock made its high at 36 in late April, followed by what appeared to be a corrective phase. This phase took the stock down to 30, the top of its support zone. The ensuing rally was unable to surpass the previous rally high and it stopped at 34, a lower high. That's a warning in itself, when a stock cannot surpass a previous high in a strong market. We consider it a warning and that the next trip down will typically break the previous low. It did. This recent decline has taken us below 30. Definitely not good.

So why is Limited on the "enough" list? Because I can draw in a rather flat trend line beginning with the low at 28 in early March that comes in here at 29, the current price. From here we expect Limited will rally a few points off this support level, giving it a much-needed rest from its recent decline. Once it is rested (and has sucked everyone back into it), it's likely Limited will come down and break this level and head for the low 20s.

JC Penney's

(JCP) - Get Report

recent action is typical of what we now expect for Limited.

Some other charts on our negative list include

Nucor

(NUC)

,

Toys R Us

(TOY)

,

Sara Lee

(SLC)

and

Nordstrom

(NOBE)

.

Some positive charts that have held up despite the market's collapse include

Philip Morris

(MO) - Get Report

, buyable on a dip,

Colgate

(CL) - Get Report

and

Anheuser-Busch

(BUD) - Get Report

, which apparently had some good earnings.

Delta's

(DAL) - Get Report

chart has not been spoiled by this crash in the airlines; it is sitting at support and volume is drying up. In Nasdaqland,

Cisco

(CSCO) - Get Report

continues to act like a champ and

Amgen

(AMGN) - Get Report

managed to trade just shy of 80, its initial target, so it's now buyable on a dip.

The market is oversold and the S&P 500 has some good support in the 1120-25 area with the Dow's support near 8800. Hell, in today's fast marketplace, it could be only another hour of trading before we halt this leg down.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets for TheStreet.com that normally appears Tuesday and Friday. At the time of publication she was long Amgen, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including

Goldman Sachs

and

Cowen

, and has worked with the equity trading department at

Cargill

. She appreciates your feedback at

KPMHSM@aol.com.