Jack's Wrap - Gap Fail On Over Seas Stimulus..

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The market had every reason in the world to gap up today when over the weekend China announced a 600 billion dollar stimulus package. This juiced their market along with other markets around the world and thus naturally boosted our futures way up. The Dow gapped up along with the Sp and Nas. 1680 the open on the Nas. Can't make that number up because that was the top of the gap down level from the selling that took place four trading days ago. The moment that level was hit the market started to sell. The gap saw massive willing sellers and that's exactly what you don't want to see if you're looking for a market ready to go appreciably higher. The rest of the day was spent moving slowly but gradually lower. We hit the lows about an hour before the market was to close when the shorts started to cover and a few buyers came in. The important part of that buying/short covering juncture was that it saved the markets from falling apart as 1900 Sp is a key support level. Below that is a retest at 1839. So yes, the market had a bad day when all was said and done even though it finished off the lows but the bulls can at least tell themselves they didn't lose the gap so I guess there's always hope.

It's important to understand from a technical perspective that the bottom of the triangle's are barely holding on but they must if this market wants to be able to run up over time. These patterns are incredibly reliable once they break either up or down. Because we're sitting at the bottom of these triangle's the onus is now on the bulls to take a stand and not let the bears have their way with them. Losing these triangle's would open the door to another leg lower in this market and most folks have had about enough of that by now. Each leg down only wears out the masses that much more. Most are already beaten down and who can really blame them. It's depressing doing this every day and watching the markets erode while watching people get more and more fed up not to mention unhappy. Unhappy doesn't quite state it strongly enough does it!! Those triangle's are teetering here and one more piece of really bad news may send it down. The market is doing its very best to shrug off bad news but the action lately is more one of lateral consolidation in a longer term bear flag that needs to be negated sooner than later or the odds begin to grow that it will resolve bearishly. The longer a pattern sets up the greater the chances are that they will resolve the way the trend set it up to get to that point. We all know which way that trend was which got us here. The bulls need to make the move very soon or they will be dealing with more pain.

When we started down on our way to nearly 950 points worth of losses four trading days ago, the volume was quite heavy. The volume over the past two trading days has been anemic at best. No buyers and no sellers. Very strange as the bulls have had a real chance here, due to the lack of sellers, to make a move away from the bottom of these patterns while the bears have had every chance to break down from these patterns as there are so few buyers. It's as if the bears, knowing how close they are to the break down, cover their shorts because they figure the bulls will save it while the bulls feel we're so close to breaking down it's simply inevitable the bears will take this lower thus they don't buy. A real stand off. The volume is going to pick up shortly and this is the time for the bulls to make themselves heard. It's really now or never for them. The longer they do nothing the sooner the bears will pile on.

So yes, we had a gap failure today which is clearly bearish. No denying that. However, if you look at the 60 minute charts, they are quite decent thus it suggests the bulls will be able to hang for a little while longer anyway. It doesn't mean long term as we know the 60 minute charts are short term in nature but shorting right here in front of key support along with solid 60 minute charts makes very little sense to me. The risk is too high. We're only 1% above the Sp 900 level and why short that if we have strong 60's. See the move at least before running short. The market may actually be ready for a small rally higher. I know today wasn't good action and it's hard to get too positive, but the set up is there technically thus we will wait on any shorting prospects a little while longer. For now it's best to be almost if not all cash. I don't think shorting will work right here but if you do, keep that 900 level in mind. Unless the bears can take it out, it'll be tough to make much money on the down side. Conversely, if you're long, use that 900 level to know when you're in trouble.

This is one horrific environment folks. We understand that and surely you do as well. Please play very little. Please keep things light. No need for doing anything really but maybe one or two plays if you must, not more. Very tough times mean very disciplined action is required. it's hard because of how emotional this game is. It's so tempting to run in long when we get any type of rally. Emotion will take you down in this game so please try very hard to rein that in. We may have a long play but not much. In time, we may have many shorts. We'll adapt and adjust as necessary.

Peace

Jack

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