It looked really bad for the bulls today early on. The market opened flat, but then blasted down as the early morning moved along. The Dow was down over 150 points, and the S&P 500 was trading over one percent below the critical 1249 pivot from bull to bear market. It was the ninth straight day lower for most of the major market indexes. However, just when this move lower took place, the RSI readings on all the index charts hit that magical 30 level with stochastics below 10. The market shot up off the lows, and after some back and forth late action, all the indexes finished in the green with some powerful volume to confirm the reversal. A strong move from the advance decline line as well as the market was flashing nearly four to one red early on, but finished three to two positive on the Nasdaq and slightly green by two hundred stocks on the New York Stock Exchange .
Again, all on big reversing volume. It tells that we should, I say should, try to rally for a small window of time here, but you should not get excited here if you’re a bull. The market didn’t flash a buy signal today. It simply printed some short-term bottoming candles from deeply oversold daily chart conditions. Can these candles be totally trusted? By losing the trend line at 1275/1280, it makes it a little less dependable, but technically you have to like these candles printed late day. Based on that it was worth taking on a little exposure late in the day. A good save by the bulls today as the market was looking really bearish, and still does in most instances, but we may get a small reprieve here for a day, or so, and then have to worry about things falling down once again.
You look outside the index charts sometimes to see if there are other signs that a short-term bottom may have been put in. When studying the iShares Barclays 20+ Year Treas Bond (TLT), this usually rises when the market falls, and then its opposite brother in crime, the ProShares UltraShort 20+ Year Treasury (TBT), which usually falls when the market falls, both printed topping and bottoming candles, respectively, as well today. The TLT put in a classic overbought topping stick today while the TBT put in a pretty reversal at oversold. These charts also suggest and confirm that we should have seen a short-term market bottom today. The one unknown is how well these charts will work now that we’re below 1275/1280. We’ll find out soon enough for sure, but they do give hope to the bulls that some type of bottom has been seen for the very short-term.
One other place I like to look for confirmation is the financial sector since they are the weakest of the weak. I look to see if that chart put in a bottoming stick today, and that too suggests short-term capitulation. Straight down, and it, too, put in a huge reversal stick today. When you can throw in the worst stocks in the world to the reversal group you have to be encouraged that things have seen the worst of times short-term. It doesn’t mean we blast up, or are even up in the early hours tomorrow. We could test down one more time early on, but that should not be how things go as the day moves along. All you can do is look around and see if there are confirmation to the index charts. The financials did give that type of reversal today, so the bulls can be hopeful they live in the world of the bull market for at least another day. Beyond that, things are still not in good shape, but we take it one day at a time.
The economic reports that have come out over the past few weeks are suggestive of the potential of a double dip recession. It doesn’t mean it’s etched in stone, but after two failed quantitative easing programs, you can’t be very encouraged about things. We have seen huge declines in the GDP, Chicago PMI, Durable goods, consumer spending, and most importantly, ISM manufacturing. Ugly across the board. The market is starting to price in, and deal with, the potential of this trend continuing since little is being done by our elected leaders to make this reverse positively. The ISM manufacturing report came in at 50 which is flat line. It was 61. Any move below 50 is contraction, and one has to wonder if the next report will show just that. The Jobs Report this Friday could be the final blow that suggests we are on the precipice of recession once again. Let’s hope for good figures. If the numbers are really bad, you should expect the market to finally lose 1249 for good. Some of the bad news is being built in, thus, it wouldn’t take much to give the market a little boost higher.
The market isn’t great folks, but all is not lost as of yet. Please keep in mind that only a strong move that closes below S&P 500 1249 confirms the reality of the next bear market. We can only take this one day at a time, and learn by the price action and the movement of those critically important oscillators. Keep it light.
Peace,
Jack
