The market got off to an encouraging start yesterday morning, but pressure from the persistent downtrend of the past six weeks caused excitement to quickly fade. After gapping higher on the open, traders immediately sold into strength, causing the major indices to trend steadily lower throughout the morning session. Stocks subsequently moved in a choppy, sideways range throughout the afternoon before finishing well in the red. Although the blue chip Dow Jones Industrial Average showed a bit of relative strength by losing just 0.4%, the benchmark S&P 500 Index shed 0.9%. The Nasdaq Composite fell 1.2%, as the small-cap Russell 2000 and S&P Midcap 400 indices dropped 1.6% and 1.0% respectively. Each of the main stock market indexes finished in the bottom quarter of its intraday range.

Turnover receded substantially from last Friday's above average volume levels, enabling the broad market to dodge what would have been the second straight day of institutional selling. Total volume in the NYSE declined 18%, while volume in the Nasdaq came in 15% lighter than the previous day's level. In both exchanges, declining volume exceeded advancing volume by a margin of approximately 3 to 1, certainly not ugly enough to indicate extreme levels of selling.

After getting pummeled over the past six weeks, where will the S&P 500 eventually find support? Though the daily chart looks rather ominous, the long-term monthly chart may shed some light on the situation. Take a look:

As the dashed horizontal line indicates, notice how the S&P 500 has fallen to support of the lows from June and July of 2006 (circled in blue). More importantly, those lows correspond to significant support from an area of prior highs (circled in pink). Many traders think that prior lows provide more price support than an area of prior highs, but this is not the case. Over the years, we've found that prior highs are more likely to hold the price of a stock or ETF than a dip to an area of prior lows. Just think about what formed support of lows from June and July of 2006 in the first place. It was that area of prior highs that we circled in pink. We're not suggesting that the S&P 500's current sell-off to this area of horizontal price support will mark the ultimate low of the current bear market. However, it is pretty likely this area will at least provide a decent bounce in the near-term.

Over the past two weeks, one could have easily justified the statement that stocks are "oversold," but placing aggressive buy orders purely on that assessment would have been a costly proposition.