No one can argue that today was somewhat of a shock since the day after Thanksgiving is normally an up day with a retail bias. No buying today with the Dow down nearly one hundred points. The S&P 500 performed poorly as well and closed within shouting distance of support at a gap at 1183. If that goes away it can then test back to the 1174 or its 20-day exponential moving average. If that goes this market will fall harder and go from neutrality on the daily index charts to oversold, which is what I would very much like to see no doubt.
After the high trin reading on Tuesday we got the anticipated bounce Wednesday, but no follow through today as the S&P 500 failed big time at 1200 or the next big level of resistance. Actually, with today’s gap down, you can add 1195 as big resistance, thus, fortifying that zone of difficulty for the bulls at 1195/1200. Bottom line is we closed near the lows today and that’s just not very good action, although we remain range bound between 1174 and 1200 short-term. One will have to give way soon enough so we’ll know more shortly.
Let’s talk about the bullish looking dollar daily chart. It’s getting very close to finally getting overbought there, and if we turn to the 60-minute charts you can see it’s already overbought with RSI’s in the 75 area and stochastic’s over 90 with a highly compressed top side MACD. Some form of a pullback is inevitable, but tough to time which would give our stock market a little boost. The pullback shouldn’t be terrible at all.
This suggests the possibility of S&P 500 going down towards 1145, or thereabouts, which would really move the fear meter up in a big way while also accomplishing the oversold index chart conditions I would love to see. Oversold daily charts, along with eroding sentiment, give the market a chance at moving higher appreciably once again. Just when everyone thinks the game is over the market goes higher once again. But that’s down the road.
Let’s speak briefly about the pathway here for this market. It’s been exactly three weeks since we topped out after making our measurements and getting violently overbought on those daily charts. I warned this lateral to down could last a lot longer than you’d think and most of you probably feel it has been long enough already. There is a ways to go from here. These things take a lot of time and last longer than most think possible because you have to eliminate the froth and wipe out those overbought oscillators. No choice in the matter. Just the way it is and always will be.
Even if we get a small move up soon from an overbought dollar pullback, the down side likely hasn’t finished yet, so you’ll all need some further patience. You’ve come this far as the daily charts are no longer overbought. You can be patent some weeks longer if need be.
The bigger picture up trend is still very much alive. It may look a little broken if we take out those 50-day exponential moving averages for a while, which I am thinking will happen, especially on the Dow and S&P 500 This game is all about being appropriate, and you’re all hopefully doing a good job there. Hang in there a while longer please.
Our foreign markets are really performing badly these days with many of them breaking through and losing their 50-day exponential moving averages. This has helped our markets do what they need to do. They, too, were very overbought and on high poles with poor sentiment conditions, thus, it’s really a world wide correction.
Our market should mirror the moves lower over the next few weeks as the foreign markets are now leading lower. Interesting to see us hold up better when everyone wanted to trash our markets versus the rest of the world. Nothing bad with our markets for now. Can get bad later on but for now nothing bad at all.
I don’t need to keep stating the obvious, but you can see with today’s action where the leading sectors were on the losing side. Financials stink by far the worst of all of the other sectors. The financial market is in a longer-term bear market which is showing no signs of any recovery. This may be a bad sign for us somewhere down the road, but we’ll deal with that when the time comes. That’s not here yet.
If you’re going to play a lateral to down market make sure you avoid the worst sectors and focus on strength and lower to mid beta plays. For now go very slow and easy. Please don’t overplay this market on either side of things. Not too much long exposure and not much short exposure. This is a whipsaw environment and that is the equation for lots of emotion. Less is more and no more than three plays seem appropriate.
Enjoy life and play with a child if you get the chance this weekend and every day.
Peace,
Jack
(See Bank of America Corporation (BAC), Wells Fargo & Company (WFC), Citigroup, Inc. (C), Goldman Sachs (GS) and some of the other financial institutions.)
