What can you say about this market that hasn’t already been said a lot over the past few months. It has incredible staying power with all dips being bought, no matter how nasty the dip is. Yesterday we saw the Dow down near 225 points at its lows, only to come back a bit and close down 165 points. No problem since today it went right back up, powerfully, making yesterday a non-issue. RSI’s got back in to the upper 50’s on the daily charts, and for some reason, it was all the market needed before trying higher once again. It would have been better if we sold deeper to unwind things further. That could still very well occur, but for today the bulls were ravenous, wanting to be in on yesterday’s dip. When markets are in a strong up trend such as our market is in, it doesn’t allow for too much selling before the buyers come in. Only one day for now where the selling was intense.
Let me remind you that it doesn’t mean we just blast back up as it would still be better to have deeper selling, but you have to stay open to all possibilities, and you have to have some scratch in the game at all times and deal with the selling when it happens. Shorting doesn’t make sense as it’s playing counter trend. Overbought does not mean a sell signal is in place. Not one bit. Pullback yes, but not a true sell signal. For now, the market wants to try grinding higher through some pullbacks, but the game says to buy weakness when it falls in to the laps of the bulls. The market showed its true colors today and exactly what type of trend we’re in, but please be careful for the moment. More on that in a second. A knockout for the bulls today.
So why take it easy here? We’re in the gap down from yesterday on the Nasdaq, with the top of the gap down at 2475, and the bottom of the gap down at 2462. It would be best to buy weakness below 2462, but if we blast through 2475 then the market is set up to move higher once again. Selling would allow for more unwinding and thus better set-ups. The market doesn’t always give what we want and we’ll adapt, but either way is fine. Selling preferred. Each night we get earnings reports, which often set the tone for the next day, so a night of bad earnings could afford us the chance to get in cheaper. But you never know on that front. We’ll simply play it as it sets up folks. Remember, though, that 2462 to 2475 Nasdaq is tough gap resistance.
The good that came today came from the financials as the day went on. Wells Fargo & Company (WFC) said they had no real issues with mortgage headaches, which allowed the stock to rock higher and pull it out of its latest breakdown. That spread somewhat to other stocks in the financial arena, although Bank of America Corp (BAC) is still awful overall. The market will need this sector to get out its bearish market behavior for it to have any chance at much higher market prices down the road.
Just when it seems all is lost, such as we thought after yesterday’s breakdowns, it finds a way to save itself, although it hasn’t found a way to turn bullish technically. It saves itself from doom, but then, basically, hangs around and goes through the same process over and over again. It’s as if it wants to break down and just give up, but just when it’s about to throw in the hat, some news comes out of left field and saves the day. The bulls would give anything to see these socks actually make a move to put them in a bullish position but no one has control of this sector for the time being, although the bears had them on their knees at the close yesterday. They let them off the canvas today. The bulls are breathing a bit easier this evening.
We all know sentiment plays a big role at extremes in this crazy game. The bull-bear spread is now at 23.1% more bulls, and thus, at equilibrium. No one has an advantage on this front for the time being. However, it is interesting to watch how fast fear moves higher on the first day of strong selling such as we saw yesterday. The first reading on the put-call was 1.34 today, a very high number, meaning the bears were at it again. A reading of 1.15 followed. When you’re decently over 1.0 it shows a lot of bearish behavior. Yesterday got the bears frothy all over again, thus, once the market opened those bears were ravaging over buying puts on those index plays. Good to see, if you’re still more bullish such as I am short term, those bears rocking in once again.
So, now the market is stuck below a gap top at 2475 on the Nasdaq. Good behavior today, but by no means a guarantee of higher prices for the immediate future. it would not be a surprise to see the market fluctuate a while longer here. 2425 to 2436 is strong support. 1150 to 1156 is strong support on the SPX. Selling should be contained by these levels, but we can’t rule out deeper tests down to those 50-day exponential moving averages. We take it day to day here. Nothing too aggressive up here. Buying weakness, if allowed, would be best.
Peace,
Jack
