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By Lawrence G. McMillan

The general market, as measured by the Standard & Poor’s 500 Index, broke down badly this week, smashing through previous support at 1,120 and 1,100, and registering new lows for this bearish leg that started back in July.

However, as has often been the case over the past two months, strong moves in one direction create extremely overbought and oversold conditions — which then help launch a counter-move in the opposite direction. This week was no exception. An oversold rally of major proportions developed Tuesday afternoon. These oversold rallies are unbelievably strong — especially this one, which was preceded by three of four days in the “90% down day” category. The resulting 45-point S&P 500 SPX -0.07%  rally in was perhaps unprecedented (unless you’re old enough to remember the “point-a-minute” Michigan football team of yore). Another strong rally has been tacked on today. Makes one wonder who was selling previously, and where are they now?

The $SPX violation of the 1,120 and then 1,100 levels was significant, but now we have sliced right back up through them with nary a pause of resistance. There was previous resistance at 1,140, but that has been overcome as well. By the way, this is not going to be a “90% up day,” but lately the rallies — while broad, when they occur — have not been able to reach that 90% category.

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