And that’s good news for the bulls as they needed a peaceful, slow moving day to allow the 60-minute short-term charts to unwind some from overbought. 70 RSI’s are 70 RSI’s and it happened fast after yesterday’s huge up day in the market. Once the short-term charts get overbought you start to struggle, especially if you’re near important resistance, such as this market was yesterday. For the market to try to make a move towards the 50-day exponential moving averages, you need the short-term charts to recycle to some degree. With the fed announcing his decision on interest rates, which the whole world knew was for them to stay as they were, the market was more interested in the statement to follow in his question and answer session.
The market started to pull back some once he began this conference, but that’s really just the excuse to unwind things down some for those short-term charts. In the end we saw some pullback for the day, but overall, it was a quiet day that started the unwinding process for this market. Any further selling shouldn’t be too much lower from here, but we are still in the process of unwinding, thus, some patience would be best from here.
If we study all of the major index charts and many of the other ETF charts from various sectors we see most, if not just about all of them, have seen a MACD cross over from bearish to more bullish short-term. This is natural action when you have sold off as hard and for as long as we did. There has to be a period of time where, at the very least, you form a right side move up that helps unwind deeply oversold daily chart oscillators. The MACD’s have crossed and that usually means that down side action will be limited short-term as the bulls have a bit more control for the short-term. It doesn’t mean we’re going to blast up and out. Not at all.
It does suggest that being bearish very short-term probably won’t work out well. There’s massive resistance against the bulls not too far above, so you have to relax with too many new plays. It’s easy to get caught up in the emotion of things as we head higher. However, you have to use common sense here. Since we’re in more of a down trend, as you approach major resistance, you want to relax. The index charts hit their moving averages today from underneath, and thus, it’s no surprise we fell back off that test. When you get short-term overbought at something like a 20-day exponential moving average on the daily chart, you’re not getting right through. Fed Bernanke sounded scared in his voice today. He sounded like a man defeated. His efforts to keep the economy above water isn’t working, and he knows it and now has to share with the world that he knows it. He said the economy was slower than he had hoped, or thought, and how he’d now have to bring down economic growth expectations. When asked questions he seemed to talk as if he didn’t like what he saw coming, but also tried to keep the masses somewhat at peace. He wouldn’t just say things were beyond repair, but he was careful not to paint a wonderful story of great things ahead. He knows there’s no reality to that and doesn’t want the world to be disappointed when it doesn’t come to fruition.
He now knows that flooding the system with too much money that simply went unused by the public, and only caused deeper debt, was a huge mistake. He felt trapped, apparently, and didn’t want to do nothing and seem incapable to everyone. He tried to do something he shouldn’t have done, but the emotion of the moment caused actions he now clearly regrets. It is what it is and we’re all going to pay for it all at some point in time. The man is in a box and he knows it. We’ll see if the headaches of this economy are temporary or longer lasting. The action of the stock market technical’s will certainly let us all know soon enough.
The stock market will NOT be able to absorb another financial melt down situation if it shows up anywhere on the globe. It would likely enter another bear market and struggle for a long time should that take place. The world is vulnerable folks, make no mistake about that. It is very vulnerable for sure. We just saw Greece dodge a bullet for the moment, but that doesn’t guarantee they’ll be fine in the future. Things are very bad there and only getting worse. We are watching our own financial situation worsen all over this country.
State after state is reporting problems. Lots of states with recessionary numbers now. It’s nice to fantasize and say all is well. But it’s not. There are problems everywhere. There are no real solutions to them at this moment in time. You’re all smart people. You see what’s happening in front of your eyes. The reports are worsening daily it seems. Everyone seems to have been fooled by how fast things have deteriorated. Clearly Mr. Bernanke has been and he’s our leader. Let’s hope we can find a way out of this mess created by Alan Greenspan and made worse by Ben Bernanke.
So here we are. A down day after a strong up day. Rejected at our 20-day exponential moving averages. Normal for the first test. Question is, is this just a right shoulder bounce off of oversold daily charts or something much worse. We watch critical support and resistance for more insight. S&P 500 1249 is the key on the down side and 1308 is the key to get through on the up side. Which ever goes first with force will be the likely winner for what’s next. There’s hope but we can’t play on hope. Let the market tell us what to do when it break out or down. In the meantime, keep exposure fairly light. Nothing aggressive either way.
Peace,
Jack
