I could end this letter right there. Back tested and cleared the 20- and 200-day exponential moving averages, but once the index charts got near the 50-day exponential moving averages they simply gave up and fell away. Nothing good came out of the action today as our trading range held once again after the bulls threatened to try for those elusive 50’s. The bears rushing in where they needed to which dampened the emotions once again of even the most ardent bulls. How can you not feel disappointed if you’re a bull who always thinks the market is headed higher? You got ever so close today only to see the carpet get pulled out from underneath you late in the day. Normal action in a down trending market, but that for the moment is trading between critical support and resistance. More on that later on.
The market gave a valiant effort today after more bad news hit out of Europe regarding Italy and their potential for falling apart along with Spain and Greece. The futures fell hard on that news, but, after a gap down, found a way to recover and turn green intra-day. It’s been trading that way for a while now. Bad news gets bought up and good news gets sold down.
The market decided to sell hard late, however, and that’s now not great for the prospects for tomorrow mornings open. Late selling is not what you want to see, thus, now the bears will see if they can get that gap down below 1300 tomorrow morning on the S&P 500. They’ll give it their best. They haven’t been very good lately at following through but they should give it a real try before the open. If not it’ll likely be yet another day in the trading range we’re currently in between 1300/1338. Each side is getting their chances. Who will win is still unclear but now the slight advantage goes to the bears with today’s late selling.
Sentiment is an issue for the bulls and bears alike right now. The bull-bear spread actually moved back up a bit from last week’s number. The bears stayed exactly the same, but the bulls rose by 3% allowing the spread to move up to 10.6%. Still, it’s a fairly good number for the bulls, but definitely NOT a buy signal. A buy signal comes when the bears pass the number of bulls and can get as high as 10% more than the bulls. Can even get to 15%, or so, but near 10%, or even a bit lower, you start to watch for technical signals on the daily oscillators that say it’s time for the big reversal back up in the market.
For now, it’s at least flashing a signal that says it’s worth keeping an eye on as the bears are rocking in now, and once they start rocking in, they can get very aggressive quite rapidly. We dropped 10% in one single week, two weeks ago, so stay tuned each and every week now to see how this all unfolds. Pessimism rushes in quickly because of fear. One more good leg lower in this market and we’ll likely have the fear necessary to turn this market around in a big way. Again, we’re not there yet.
The market will now turn its emotions towards the Greece elections coming up this weekend and which party will get voted into office. It’s pretty much considered a dead heat between the two parties with one party saying they’ll leave the Euro if elected. The market is not thrilled with news like that and has everyone nervous about who gets in. The uncertainty is not what the market likes a whole lot. After the Greece elections, the market will turn its attention next week to Mr. Bernanke’s announcement coming out once they have their usual meeting.
What he says will have the normal impact on where the market wants to go. The market is anxious to hear that he’s there for it, that he’ll do the usual money printing ventures once things start to deteriorate. Hopefully, even before that takes place. Just keep printing, Baby. It’s bad, but what the market wants for some unknown reason, although, I do believe the market won’t rush up as hard as many think, once it comes out, and, yes, folks, QE3 is coming out one of these days, especially if the market starts another leg lower. So the election and the fed give our markets hope but no one knows what’ll come out of either situation so stay tuned as usual for all the possibilities.
Long-term, the only two numbers that matter are S&P 500 1260, or the long-term up trend line off the March 2009 bear market lows, and 1338, or the 50-day exponential moving average. In between, we have a strong gap up from last week at S&P 500 1300. The bears need to remove this level in order to get another test down towards S&P 500 1260. It’s never easy to take out a big open gap such as we have at S&P 500 1300, so it would be best if the bears could find a way to take out 1300 with a strong gap below it.
Today offers hope for the bears, but in this whipsaw market you never know. If the bulls lose 1300, they’ll have to start a long squeeze, which would allow for quite a rapid move lower. Watch 1300 very closely for more insight. As long as we’re above 1300, the bulls are fine, but below, they are clearly not. It is the only number for now that really matters.
Peace,
Jack
