That’s really all that’s going on. The bears will want you to think something terrible is happening since we are now down three straight days. That will give either side a bit more confidence. It makes sense to me. However, if you study the daily charts, it is quite clear that this pullback is completely meaningless in the bigger scheme of things. We’re still well above key support, but we’re still well below gap resistance. We gapped down a bit today, nothing terrible but still a small gap down. We started falling a bit harder as the morning wore on, but it nothing too severe. There was a lot of back and forth after that as the bears tried to pull things down with some force, but the volume was never really there for some type of deeper collapse. It was a good day in the end for the bears as they at least held the market lower all day, and again, that’s three in a row.
When the bulls and bears are locked up in a battle for a directional move, you take whatever you can get to feel better about your chances. For now, the bears feel a bit better about things, but they shouldn’t. They’ve done nothing, but neither have the bulls, and so the battle rages on in the moment. Someday we’ll get a clear winner, but, for now, the real answer to it all is to keep things light and recognize the market for what it is. It’s nothing to get excited about on any level. Just keep your emotions in place, and don’t allow yourself to do more than you should simply because you’re bored. Bored is no fun, but losing a lot of money is less fun than that.
The banks are not doing very well and neither are the materials and commodity stocks. The areas of the market where there’s the most risk to problems related to Europe. These sectors simply cannot get out of their way. They make small oversold moves back up, but once there’s any type of unwinding, they fail at resistance. No breaking through and if they do, it’s a head fake. They fail just when you think they’re out of trouble. Suck you in and spit you out.
You need to be so careful buying anything that looks like it’s finally getting through the worst of its move lower. Make sure the daily oscillators are right, and more than that, when trying to clear an important exponential moving average, make sure there’s big volume. Otherwise, stay away. Volume is critical for any stocks trying to break a down trend in place. When it gets to key resistance and starts breaking through on price, it must have the proper volume or it’s likely to fail. Not always, but quite likely to do so, thus, you must pay attention. Price alone is never enough. I’m not saying you can’t buy anything in those areas of the market, but make sure all is aligned. If not, you are likely to have a bad experience.
Mr. Bernanke is going to sit back for a while as, I believe, he’ll only use the evil QE3 program when he feels forced to do so from a technical perspective related to the stock market. He doesn’t want to ever have to use it, thus, will wait for an emergency to let it out. Emergency to him will always be Wall Street. If it goes so goes the economy. He’s probably watching the up-trend line at roughly 1265 on the S&P 500. We’re well above that for now, so why do it now. As I’ve mentioned many times before, he’s hoping just the threat of using it will keep the bears at bay while he tries to buy time to find an answer to what is killing Europe. If not himself, then hopefully the higher minds of the Eurozone can come up with a solution. Bottom line is he’s trying to buy extra time as much as possible while everyone works on a solution. We can’t blame him for his efforts. They actually seem to be working.
So we have those two gaps that are plaguing both sides from making the big move. The bulls have that gap at 2895 along with the 20- and 50-day exponential moving averages at 2899 and 2900. The bears created their own safe zone with the gap down on Friday. 2975 is now their safety zone. We could trade between 2895 and 2975 for quite some time. Nearly three percent. That’s large enough for now. It’s tough to get too excited between those two levels. There’s lots of meaningless noise and nothing else.
Keep it light, and wait for set-ups, is the best you can do for now. Be patient.
Peace,
Jack
