We have a market that spent a lot of time moving slowly off its original highs at 2887 Nasdaq and 1370 S&P 500. A slow methodical move lower that suddenly picked up a lot of steam a few weeks back. A tremendous move lower on impulsive oscillators. It confirmed the selling as the real deal. Once you get oversold enough on such an intense move lower, you need to spend a decent amount of time working off the MACD, stochastic’s, and RSI from deeply oversold conditions. The market has been doing that lately setting up a clear bear flag pattern that is allowing the oscillators to move higher without too much price appreciation. This is more bear market like behavior. The 20 and sometimes as high as the 50 day exponential moving averages capping any move higher setting the boundaries in the bear flag pattern. The 20 or 50 day exponential moving average the top and the 200-day exponential moving average at the bottom.
Too tough for the bears to break below those 200’s because of oversold, but too tough for the bulls take back the lost 20’s or 50’s. The longer you trade between the two the higher the oscillators move, and that’s bad news for the bulls. They would need to minimally break back above the 50-day exponential moving average to say they at least did some damage to the bears while these oscillators unwound. If they can’t do that it’s bad news bigger picture. So far, although its early, they have been unable to do the job they really need to get done. Many of the stochastic’s on the important index daily charts are as high as 50+ while RSI’s have gotten decently above 30, or the oversold level. MACD’s are somewhat off the bottom, but they always lag behind. With today’s close we have done unwinding, but price isn’t good, and thus, we have to start becoming more concerned with the possibility of this market breaking down to a new leg lower.
What’s really troubling about today’s action overall is the fact that late yesterday it was announced that Greece would get their bailout package because Greece’s Government promised the loaners an austerity package against its citizens. Good news in some perverse way, and the market loved it. The Dow rallied almost 150 points from the time of that announcement, while the Nasdaq flew up into the green at the close of trading, up 17 points. You would think, with no bad news overnight, that the market would follow through on that piece of news today.
The futures were blasting higher overnight ,as they should, one would think. They began to erode late in the night and into the morning. We opened up flat and headed south from there. Where was the follow-through? Nowhere to be found, unfortunately, for the bulls. Yesterday’s news was simply a reflex bounce caused by the news, that in truth, everyone knows isn’t really good news. Chasing more good dollars after bad. Wonder where we’ve seen that before! The fact that we didn’t rise up today in the market after the Greece news has to be looked upon as bad action for the short-term. Greece ultimately meant nothing to the market. Not good for the bullish case.
You want to see how leaders are leading, or not. In the financial sector, the real leader of the pack is JPMorgan Chase & Co. (JPM). The very best of the best in that world with the best numbers on their books relative to their competitors such as Bank of America Corporation (BAC) or Citigroup, Inc. (C). The stock cratered down today, setting a new low in its pattern. No leadership. In fact, leadership to the downside, which is bad news for a sector that continues to implode on itself week after week with some bounces, of course, along the way.
Nothing good ever seems to come from this sector and there doesn’t seem to be any good news on the horizon as QE2 is about to end in six days. No more flooding of cash to the banks. The flooding of cash didn’t work to stimulate the economy, and now that last trick is being taken away from the major financial institutions. Last thing they need, but because of the inflation it’s causing in the real world, the gift of dollars to these banks is finally, and appropriately, being taken away. Not a lot of good news it seems in this area of the market, and one would think we need to see some type of recovery there before we can get too excited about the markets bigger picture prospects.
The key numbers to watch for a breakout, or a breakdown, are 1298 on the S&P 500 for a move higher and 1249 S&P 500 for a move lower. 1249 is the ultimate line in the sand. 2600 is the ultimate line in the sand for the Nasdaq. While the market looks terrible technically you never know how things will play out. The MACD’s on the daily charts give some hope to the bullish case, but not much else at this point in time. A directional move should occur whichever breaks first. Anything in between is purely market noise and nothing else no matter how good or bad it may look.
We got to the 20-day exponential moving average and the market suddenly felt and looked good. It didn’t play out that way. It hit the 200-day exponential moving average, and things looked like market death, but the market held easily. All trading in between 1298 and 1249 is nothing important. You can be right on 1249 and right on 1298, but again, meaningless until you get a forceful move above, or below, those important support and resistance levels. Stay nimble. Keep things extraordinarily light. Cash is a wonderful thing. We have much to learn about the markets intent going forward. Only a clean break of 1249 or 1298 matter. Don’t forget that please.
Peace,
Jack
