There are some suggestions, based upon rebounds in Asia and Europe this morning, that we could see a respite in the selling. In reviewing many sector charts there is evidence that volume was picking up yesterday as green candlesticks were being registered. With so little guidance available from other normal chart cues however, as we have broken down so far below recent trendlines and moving averages, one needs to be very careful about playing the long side. Rather one should be thinking about giving the short side a break.

The Russell 2000 (^RUT) completed the move down to the 540 level yesterday, which again could suggest that from a near term perspective with a 62% retracement of the whole bull move from 2003 to 2007 now registered, there could be some price consolidation attempts in the small caps. Longer term I would suggest that the downside surprises on the degree of economic contraction now revealing itself in poor earnings announcements will keep this index out of favor for an extended period.



The CBOE Volatility Index (^VIX) has recorded unprecedented extreme readings, which underlines the heightened fear in the market place, but also increases the odds of a trap being placed for the over-enthusiastic bears.

Once a rally gets going it could be dramatic even if turns out to be short lived.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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