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Wednesday March 7th 2012
Nothing Bearish Taking Place....
by Jack Steiman www.SwingTradeOnline.com
Of course, that’s just one man’s opinion. I could end up being wrong, but this market simply got too overbought for too long and is in the slow process of unwinding those oscillators. There could, and likely should, be a little more work on the down side before we find a real bottom. But being bearish in this market is the wrong approach to be taking, in my humblest of opinions. Markets can fake you out emotionally, and all it takes is a little deviation from the process recently in progress. If the market has been climbing slowly and steadily as our market has, if you have one nasty down day of 200 points on the Dow, it feels as if the walls are closing in, with the market ready to crash out. It should fall further, but to think the party is over for the bulls because we are finally selling some is ridiculous.
There was no internal damage done as the market sold off yesterday, so it's silly to think the market is about to fall down without recovering. It will recover once the selling is truly behind us, but I caution that this may take a little while, even with today's gains making many think the selling is over. The market will do its best to part you with your hard earned dollars, and thus, sometimes it's best to be extremely patient and see how things set up. In the weeks ahead, things should set back up quite favorably and allow for additional upside action. Could we test major support before that takes place? Sure we could. Could it get a bit scary before that happens? You bet. That doesn't mean things won't set up nicely. Buying weakness will be what we have to do, and thus, don't let yesterday be a deterrent to what's possible for the bulls in the future, once this all works itself out in time.
The market retraced some of yesterday's losses as the short-term 60-minute charts got very oversold with the hard move lower in equities yesterday. It’s normal for a market to retrace back some of the losses in order to unwind the short-term oscillators back up. The oscillators, however, have moved down fairly hard on the daily charts these past few days, so any move back to a new high would create huge negative divergences, thus, it's not likely we'll be seeing any special upside action in the very near-term. It doesn't mean we crater out either. It simply means upside from a sustainable perspective will be a little more difficult short-term.
Longer-term, I think the upside will be there, but the daily oscillators on the index charts as well as on most leading stocks are not great. Some stocks will set up before others, and they can be played as the market pulls back, so we will have to watch for that as it unfolds. Today fit the model technically perfect, but now we'll see what occurs tomorrow as the bears have no excuse after today's move back up. They should be able to take today's advance into a move lower tomorrow. They've done nothing for a long time, so we'll see if they can execute. The onus is on them to get the job done.
This bull market is not the cleanest bull market I've ever seen as many individual sectors and stocks are acting more bearishly than one would think in a bullish environment. Many, and I mean many, stocks in the commodity world are acting as if they're in bear markets. This is a little out of the ordinary for a bull market in that inflation is what usually moves a good bull market higher. That there's growth, but the commodity stocks are not acting that well. They are the true inflationary stocks of this market, and thus, you have to wonder a bit about why so many of them are acting so poorly. On the other hand, the financial stocks are performing very well. They were the laggards of the stock market world for many years. I guess things can change but remain the same.
Just switch what's working now to what wasn't working before and vice versa. At one time, the commodity stocks led the way. Now technology and financial stocks are doing the trick. Maybe it's a god sign in that it won't mean we have to deal with too much inflation down the road. Just the right amount can keep a market moving higher. Too much isn't very good anyway. It wouldn't be a bad thing if silver and gold fell along with other commodities while the market rose. We'll see how it plays out, but there's definitely a change of the seating order in this market versus how it was years back. That which led down is leading up, and that which led up is leading down now.
The market, after yesterday’s hard pull down, is stuck between resistance and support. 1354 is now the resistance area as it's the 20-day exponential moving average. 1325 is next support as it's the 50-day exponential moving average followed by the 1315 area, which is the massive support level, or the long-term down trend line, which really shouldn't be broken, or at least, breached by much. 1370 is the current wall of resistance. Below 1315 is 1290 to 1300, but we don't really want to see that if the market is to remain bullish. A breach is fine, but not closing prices for multiple days decently below 1315.
The big jobs report on Friday will tell us a lot, but really it's more about tomorrow as today's inside day should now be followed up by some selling below 1340 or yesterday's lowest print. If the bears can't do much, we may try to test the highs once again. For now, we're a bit range-bound, but nothing bearish is under way, even if we do pull back to S&P 500 1315, or breach a little below.