We have reached a point in this down trend when we should see some relief from the selling for a little while. No guarantee, of course, but we should see some real relief now that the bulls finally printed a daily candlestick that would suggest the bears have finally run out of steam. That’s only for the very short-term but it is a signal that the near-term should see some type of rally attempt. I’ll talk about where that can go later on in this newsletter, but the ingredients have come together offering up a short-term rally. The move down has been relentless. Non-stop selling seemingly day after day. Listen to the numbers here. The Dow has basically fallen 1,200 points nearly straight down. The S&P 500 was down a powerful 110 points at today’s lows and get this, the Nasdaq was down ten points shy of an amazing 400 points. 3200 to 2810 at today’s lows.
That is stunning to say the least. It’s time for relief. Deserved relief for the bulls. Now if the wrong news hits over the weekend, it’ll hit a little bit and keep things down to flat. But if we don’t get any further bad news this weekend, we should see the markets rally for a few days to a week or two overall. Impossible in this environment to know exactly how long the rally will last. Nothing to get excited about, but a rally is a rally and right now the bulls will take anything that stops the type of downfall that took the Nasdaq down just about four-hundred straight points. I think even the bears have to be happy about what they accomplished, but they, too, are likely full on this trade for the short-term. So the odds suggest a rally ahead to relieve the very oversold conditions that existed at today’s lows. The bulls have had a very difficult time, but now it’s likely they can catch their breath.
The reason for this massive sell off over the past many weeks is two-fold. First was the markets disappointment in Obama being voted back in as he is not a pro-big business, or any business-really type of leader. Between health care and tax problems currently existing for corporate America, it appears clear now that the market wanted Romney. He seemed to represent the changes the market wanted. In addition, add to this the problems of the fiscal cliff that’s looming with little being done to find a solution by both sides. The market has been sending a message loud and clear for all to hear. These two issues have only one solution that would help the market. We can’t change who was voted in, but the market can feel better about things if the two sides would work together for the people they represent.
There were some signs of that late this afternoon when the representatives from both sides talked about the need for both to give in some and make the necessary changes. That was when the oversold conditions kicked in for the bulls. No coincidence for sure. If the two sides can talk positively over the weekend, there is the chance that this rally to come will be pretty decent. We shall see what they say. Or don’t. The market needs resolution before the last moment. If the two sides bicker until the last minute the market will be quite a bit lower once this short-term rally plays out.
Apple Inc. (AAPL) is the leader, so when it printed a doji today, meaning a close where it opened the day at, it told me that the buyers have finally caught up to the sellers. Getting a bottoming stick is critical, with a stock such as Apple Inc. (AAPL), because it is the market leader. The stock fell exactly $198 dollars before finding its low today. That’s truly amazing. Nearly $200 in eight weeks is hard to grasp, but that’s what we saw. So when you see AAPL print its first real bottoming stick in that time frame it’s a worthy happening.
So where can the market go from here is what we really want to understand.
Let’s study massive resistance levels above on all the key-index charts and on AAPL. The Dow has strong resistance at its 20- and 200-day exponential moving averages as do the rest of the key indexes, such as the S&P 500 and Nasdaq. Those levels are as follows. Dow 12,905 and 12,953. For the S&P 500, the numbers are 1375 and then 1395. Lastly, for the Nasdaq, the levels are 2945 and 2950. Very tight numbers on the Dow and Nasdaq on those trailing 20’s to the 200’s. It shows how weak those sectors are. The fact that the S&P 500 is one and half percent apart shows its relative strength versus those other key indexes. There’s no guarantee we’ll be able to get up to those levels, but even in bear markets you normally back test them. So it should be no surprise to anyone to see us rally back up to those levels. If and when we get there, you’ll look to short when you get the reversal off those key numbers.
One day at a time, but that’s the possible road map here. A rally should ensue from here for a while with a decent chance to back test those moving averages.
Be peaceful and enjoy life.
Peace,
Jack
