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Weekend Analysis for Fri June 20th 2008 RSS

Fri June 20th 2008
If It Looks Like A Bear..
by Jack Steiman

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There is no denying it any longer.  The market is not defending critical support. False move after false move is giving the bulls hope but they are not lasting. The bullish set ups are not working more than a day or two and the fact that this process is occurring over and over again simply tells us that we're in a bear market for now. All moves higher are being sold off quite rapidly rather than following through. Look at how the market closed yesterday on large volume. Excellent near term action from yesterday. This morning we get bad news from Merrill Lynch. In a good environment, that would be ignored. The good vibes from yesterday would have followed through. Instead, the bears seized on it and sent the market reeling down without looking back for so much as a wave goodbye. A gap down that trended down all day and ignored oversold conditions throughout on the 60's and 15's. That's what takes place in a bear market. In a bull market, the oversold would immediately result in a good strong move higher. We eventually get those moves but only after it stays oversold much longer than usual and then the rally itself is muted. Short lived and sold off quickly.  Bottom line is the market is acting as a bear.

 
There is one exception to that bear market scenario. The Nas and Ndx are still well above their March lows. Dynamically so in fact. Money isn't completely leaving the stock market. It is rotating around to the world of beta and growth. However, there does come a point where even that world starts to slow down in it's advance. That happened today but keep in mind the low in March on the Nas was 2155.42. We closed today at 2406.09. 10% above the old lows even with today's awful action. The market simply won't get going, even for the tech stocks if the financial's continue to crash down day after day. The bear market in the financial world will put the brakes on the very best performers, even though you really can't couple the Nas with the Dow or Sp these days.
 
A major test is under way. The Nas is not as I just mentioned but the Dow is about to test the March lows at 11,731. The January low was 11,634. We closed today at 11,842. We're less than 1% from testing those March lows and roughly 2% from the January lows. You'd have to think, being at such critical support, the bulls will try to defend furiously. In addition, we are getting violently oversold and for a very long period of time. The confluence of these realities tells us we're likely to get a bounce near the 11,750 level. Somewhere in that neighborhood. If that bounce is weak in either price or the daily Macd, look out below. Let's hope, if you're a bull, that the rally affords a strong impulsive Macd that would allow for a positive divergence on the next move down after we bounce. If that doesn't occur then a move to 10,000 is likely.
 
I know it was options expiration day today but 2.665 billion shares on the Nas is quite heavy. The advance decline line was also quite bad. New lows are spiking again while new highs are basically non existent. Yesterday's late rally didn't have the positive internals that came close to today's negative ones and that tells a story unto itself. The internals weren't bad yesterday but they were horrific today on increasing volume. Enough said there. Bearish action. The feel good turn around in the internals that were there for the two month rally off the March lows are now disappearing.
 
I have talked about the weekly and monthly charts setting up bullish and for now, that still exists. When does that possibly kick in? Does it ever? The near term doesn't look good so hopefully after the summer. For now, what we really need to focus on is how the market can hopefully bounce off key support near the 11,750 level on the Dow. If the bounce is weak and no divergences are created, we're going much lower. Only the next week or two will tell that tale. It is what it is. If the set up is weak after the next bounce, we will short.
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Jack Steiman Former columnist for TheStreet.com, Jack Steiman is renowned for calling major shifts in the market, including the market top in October 2007. More ...

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