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In focus: Trading range?

By Lawrence G. McMillan

The market was extremely strong through last Thursday, and then the wheels began to fall off. The market has fallen sharply since then, and both yesterday and today, late-day declines wiped out promising rallies.

Both days, all of the major averages closed virtually at the lows of the day (but not the lows of Monday night when things looked bad for Italy, which so far mark the low of this decline). Tonight, after the close, Moody’s has threatened to downgrade U.S. AAA-rated debt if the debt ceiling is not raised. That has caused the Standard & Poor’s 500 Index SPX +0.18%   — in terms of futures — to fall another 8 points.

As a result, there has been some technical deterioration, but there are still some positive things as well. SPX is still above its rising 20-day moving average, so that is positive, but the chart is looking more and more like a large trading range (1260 to 1360) rather than a potentially bullish breakout. The bulls still have a chance, though, to right this ship. A close below 1300 would not be constructive, while a close above last week’s highs near 1355 would be very positive...

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