And that’s all that is going on. Nothing more and nothing less. Nothing bearish at this point in time until the bears can remove 2722 on the Nasdaq and 1290 on the S&P 500. Those are the respective 50-day exponential moving averages. The bears have made one good step in terms of the big gap down off the doji topping candle but have yet to follow through. This is classic action within a bull market. The bears make some headway but never seem to be able to follow through. It doesn’t matter what type of bad news hits the market. All that matters is that we’re in a bull market, and in bull markets, bad news gets rejected with the markets finding a way to hold up against all odds. The bears have to be very frustrated at this moment in time because today was their chance. Today was their day. Oil went to $102 per barrel. The market did nothing but pull back off the highs. No plunge. No big move lower. One would have expected that to happen, but it just didn’t. Bull market action.
You get the feeling the bears just gave up today after the move down that didn’t follow through. Who can blame them really. Not me for one. If I was a bear I would likely walk away as well. Why bother hanging in with shorts when the worst possible news won’t take this market down! So we know the index charts have lost their 20-day exponential moving averages but are bouncing a bit above their 50-day exponential moving averages. Stuck between the two moving averages for now while it makes up its mind about where it wants to go. That’s all we have for now. Stuck between moving averages, but that’s not bad news. It allows us to sit back and learn about what’s coming. Lots to learn over the next day or two.
Now let’s move beyond the frustration the bears are feeling. Is all lost for the bears? Not at all. Poor action in the transports, iShares Dow Jones Transportation Average (IYT), gives them real hope. The cost of oil is killing that sector, which is now trading below its 50-day exponential moving average. If the transports continue to trade poorly it’s likely the rest of the market will follow as so many areas of the market are dependant on the action from those transport stocks. There are also many leading stocks now trading below their 50-day exponential moving averages from all areas of this market.
This tells me things won’t be easy for too much upside short-term as things settle out. The price of oil is a real headache for this market. No one will argue with that. Even our frothy leader, Mr. Bernanke, said as much today as he was speaking about the condition of our economy. He said that oil must not stay at these levels for too long or it will drag down the consumer, and thus, the economy, and, of course, that would be devastating for stocks. Hard to argue that we would not hold up too well with oil at 100$, or more, for a very prolonged period of time. The bears have some possibilities here short-term, and thus, the reason why this market is still unclear overall.
When you look at the individual sector daily charts, you can see the lines in the sand for both sides. In most cases, the bears have the 20-day exponential moving averages above current price along with that big gap down from the top the other day. When looking down at current price, we see the bulls have the 50-day exponential moving average as support along with gaps just above that price. Each side with two weapons of price on their sides. Gaps as one and a moving average as the other. Talk about a stand off. This is really what’s making things so complicated for anyone who’s playing too much. It’s creating lots of whipsaw. Whipsaw is emotional, thus, the more you play in this type of environment the more likely you are to make bad exiting decisions.
Also, because things are so unclear, you want to wait and make sure you have a handle on where we are headed for the short-term, and that, too, isn’t exactly to grasp. The charts say a little more waiting before getting aggressive. To short, you’d have to see a 50-day exponential moving average breakdown and back test on weak oscillators. To go aggressively long, you’d need to see that upper gap start to get taken out. Keep it simple. Wait for more insight to come shortly.
Interesting times for sure folks. Some bearish short-term signals and some bullish as well. The action today wasn’t great to be sure. Didn’t retrace too much of yesterday’s losses, but we did hold on to some gains in the face of terrible action in the world of oil prices. As we all know by now, there are times to be aggressive and there are times to be less so, and this is definitely a less so time. It doesn’t mean you should have any exposure. It just means you shouldn’t have too much and get caught up emotionally. Symmetrical triangles are very difficult at best so be aware of that. Lots of whipsaw means things remain unclear, and so we should adapt to that until things get far more obvious. Sometimes that takes more time than we’d like, but safety first at all times.
Peace,
Jack
