Editor's Note: This column was originally published Tuesday on RealMoney -- on the eve of the big move in the market. For a free trial to RealMoney, click here. Or if you'd like to take a free look at Alan Farley's newsletter, click here.


We've seen neither the highs nor the lows for this year, and we're getting close to a major buying opportunity. It hasn't happened yet, but the ingredients are falling quickly into place. Traders and gurus are finally starting to chase the downside. This should increase public fear and trigger volatility index readings into the low 30s. That golden moment could give us the best reward-to-risk ratio since March 2003.


The indices are approaching their 200-day moving averages, another key ingredient for a sustainable low. I'd look for a period of testing those price levels before upside momentum comes back into play. Use caution and fade early buying surges that losers will use to get out of bad trades.

Line in the Sand
The indices are approaching an important test
Index Monday Close 200-Day EMA
Dow Industrials 10064 9873
S&P 500 1095 1062
Nasdaq 100 1381 1376
Nasdaq Composite 1910 1885
Phlx Semiconductor Index 459 466
Source: Alan Farley

I doubt we're looking at a V-style recovery, at least in the early phases of stabilization. However, buyers may trip over themselves to get back into the market once it becomes obvious that a sustainable low has been printed. This could trigger a rapid escalation back to the January highs.

Two upcoming events may affect this low's development. The first revolves around end-of-quarter window-dressing. It's hard to predict how this will affect trading, given that the major indices are all underwater for the quarter. We could see a "false dawn" scenario in which buyers bid up prices into April, only to vanish at the start of the new quarter.

More urgently, we have the April 2 release of the March employment report. I noted in a prior column that the market needs robust employment to sustain this bull market. The current bond rally tells us that many folks believe this growth cycle has already ended and is setting up for the next recession. I suspect this is nonsense, and bond bulls will be left holding the bag when numbers finally confirm the economy is recovering at a healthy pace.

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