The market began the day with so much hope. Bin Laden was killed by American forces yesterday late, and the market was celebrating it overnight. Futures were up, but only about 100 points on that news on the Dow. Not exactly what one would expect, I thought. It told me what I thought was true in that we were too overbought for the market to make much of a move higher today. I warned about this in the pre-market update. I said it didn’t make too much sense adding any new plays as the futures were weaker than one would have thought. That’s simply because we’re too overbought on both the daily and weekly index charts. You could see that once we opened for trading today the market was struggling for any appreciable upside action. It definitely made a few attempts at moving higher, but each attempt was knocked down by the bears. By day’s end the market was only slightly lower overall, but there was clearly no ability for the market to celebrate the death of one of the most cruel souls walking the planet.
This doesn’t mean things are bearish as some spoke about today on the business stations. Yes, it was disappointing on some level that the market didn’t try to stay at overbought levels that one would think should happen based on such good news. But when a market is tired a market is tired. That’s all there is to it. Nothing can interfere, bigger picture, with whatever the market has on its mind at a particular moment in time. It’ll do whatever it planned to no matter what news hits the market place. Some stocks put in nasty engulfing candles like the alert we took off in UWM. A strong winner for us, but it was time to walk away on the higher volume engulfing stick. Hopefully, it’ll give us a chance to get back in soon enough, but for now, there’s too much risk in most of the index ETF’s. It’s time to step off the gas and relax, and let things unwind so we can, but without nearly as much risk.
The Merrill Lynch & Co., Inc. Oil Services Holders (OIH) and iShares Silver Trust (SLV), two big time bubble areas of the stock market put in terrible candle sticks today. OIH broke below the 20- and 50-day exponential moving averages along with taking out gap support. Quite a day’s work when you can take out three important levels of support. I don’t think anyone would feel badly if oil took a little beating short-term. Longer-term wouldn’t be a bad thing either, but let’s get this down some, if we can only be so lucky. If the OIH can stay below its 20- and 50-day exponential moving average for a few days the bears would get a whole lot braver, and thus, maybe get this puppy down appreciably for at least a little while. I know I don’t like paying $4.29 for high test per gallon. I doubt any of you like paying, basically, $4.00 per gallon for regular.
Maybe today’s candle is a harbinger of what’s to come short-term for oil. It certainly was a bearish stick within a bull market, thus, you can’t take it too heart, but we can hope. SLV took a pounding today and tested all the way down to its 20-day exponential moving average before bouncing at the very end of the day on strong volume. Not a good stick at all. Full for sure. You never know, but that looks ready to break that 20-day exponential moving average and head to its 50-day exponential moving average far below current price at 38.00. Gold doesn’t look as bad as oil and silver, but you can’t trust it when its brothers don’t look all that healthy. Time for caution in that arena of commodities.
Let’s go over the levels that should act as good, or even strong support on pullbacks. The only two indexes that matter to me are the Nasdaq and the S&P 500. Let’s start with the froth that is the Nasdaq. It closed at 2864, and is, therefore, testing the first breakout now, support at 2861, just three points away. Below that we have horizontal support at 2840. Below that we start to deal with gaps and exponential moving averages. First on tap is 2825, or the 20-day exponential moving average. Then we have strong support at 2808 followed by the 50-day exponential moving average at 2770. I don’t think we come close to this level, but when you talk about support, you always mention the 50-day exponential moving average.
As for the S&P 500, which closed today at 1361, we have the breakout level now, support at 1344. Below that we have a double level of support at 1335, which is the 20-day exponential moving average along with it being strong gap support. 1319 is the 50-day exponential moving average. You can see that the S&P 500 along with the Nasdaq have lots of areas of solid support to hold it up.
If the market were to move higher from here it would only go from, basically, overbought on the daily and weekly charts to very overbought on those time frames. That would not be in the best interest of this market. The froth and buying dips are high for this market so you can’t guarantee things will not climb right back up. But it would clearly be in this markets best interest to spend some time going on vacation for a little while. Another push higher here would also create negative divergences on the short-term charts, and this too is not what’s best for this market.
Oscillators need a real break here. Hopefully, the little player can stay put for a while here and allow the bears to take over a bit and sell things off. The harder the better, but you cannot count on hard selling in a strong bull market, but you can hope for some. If you study the short-term charts, the negative divergences that would form on any push from here would be rather severe. The market doesn’t need sever negative divergences here so let’s hope for some decent selling short-term to allow those short-term charts to set back up properly. You need real patience here folks. You always want to buy when the risk reward is best, and that’s just not the case at this moment in time.
Peace,
Jack
