A great day on Thursday from deeply oversold conditions allowed the bulls some hope that the market would shortly move back through that nasty confluence of resistance on the S&P 500 where 1101 is the 200-day exponential moving average and 1100 is a strong gap down. We got through on Thursday at the close by a hair, but the bears made sure that wouldn’t hold up. A strong gap down took place at the open on Friday and the market never recovered, although it came very close to doing so late.
When the Fitch Ratings downgraded Spain’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘AA+’ from ‘AAA’, the market blasted down to -150 only to get it all back with thirty minutes to go in the trading session. Solid, hopeful behavior that turned very sour at the close as the market tanked out, falling over one-hundred points all over again in that short period of time. The bears telling the bulls that just getting through 1101 is going to be more than difficult.
Poor action in to the close due to two realities. 1) No one wanted to hold stocks over the 3-day weekend because of the possibility that we’d get more bad news from overseas; and 2) because the market is trading as if it’s in a bear market. Tough combination the bulls simply could not overcome. Bottom line is, today’s action tells an old story these past many weeks. The bears are in full control for now.
As of the close of trading on Wednesday, I spoke about the deeply oversold condition of the MACD’s across all the major index charts and how that would likely cause a bit of a headache for the bears near-term. Fortunately, it did allow for a very strong rally on Thursday whereby all the MACD’s did finally hook up off the bottom, although not by very much. A start but that’s all.
It seems to me that this market needs more upside to allow these very oversold MACD’s a chance to move higher to unwind them. Friday said no to that for now. Really bearish behavior but all hope is not lost yet. We will need to watch how things progress because any move back down of any kind, even just 1% or so on the averages, would put the MACD’s back in extremely oversold conditions. Not easy to get appreciable down side action under those circumstances.
If this bear wants to get rocking the MACD’s can stay compressed, but they are at very extreme levels. They don’t usually stay this compressed very long historically, but there are always exceptions in this game. The MACD’s are about the only thing the bulls can hang their hats on. Everything else is behaving like a bear. Please move through the maze gently. Nothing aggressive on either side of the ledger at this point in time would be my suggestion.
Have a great holiday weekend.
Peace,
Jack
