We saw the market come off its lows today. To many this will seem as if the selling is finally over. I’d be very careful with that type of thinking since all the market did was rally a bit after the dollar hit major resistance on its daily chart at the 200-day exponential moving average. At the same time its daily chart was hitting strong resistance, its oscillators got overbought on both the 60-minute and daily charts. So it was no real surprise to see the market find a reversal off the lows late day. None of this makes the market bullish short-term. It could lead to a small rally over the next day or so, but it’s incredibly unlikely we’ll see much to the upside here.
Could we see over 1200?
It’s possible, but I wouldn’t expect much if we do. The dollar has a very strong pattern in place, and thus, once it unwinds some it’s likely to try higher again. and this should take the market back down. When we see a rally such as we saw late day today it makes things feel a whole lot better. But please keep in mind that we’re up against strong resistance at S&P 500 1200 and again, even if we break through some, it shouldn’t blast up very high before coming back down. Today’s action can confuse folks in to thinking things will get much better, but, for the near-term, I don’t think we’ll see too much up side action once the dollar unwinds some. Slow and easy continues to be the message from today’s action.
There are lots of fears out there to keep things down from a fundamental perspective, but there’s also the sentiment issue at hand, which tells us to not expect much upside action. Markets don’t normally race much higher once we see the bulls over the bears by 30% or more. We closed last week at 35% more bulls. It’s not a perfect timing mechanism, but the market almost always struggles once it gets over 30%, especially when it see readings in the mid 30’s.
We’re also dealing with European debt problems that are threatening to bring down multiple countries. Hard to get our heads around what’s going on out there, but it is so interesting how these types of things occur just when a market is grossly overbought, has made pattern measurements and needs to unwind things. It just finds its way in to the system which provides the catalyst necessary to bring things down. Coincidence? Probably not but it is interesting how these things seem to work out.
Maybe it’s just that the market pays attention to these things more when it wants to do what it needs to, which, in this case, was to fall from the top due to the sentiment issues and its corresponding overbought conditions. The news is still fresh and gaining momentum, thus, it tells me we will continue to struggle with much upside for weeks to come if not somewhat longer than that.
The S&P 500 hit its 50-day exponential moving average today at 1174 (1173 touch) but managed to hold. The Dow actually breached below fairly decently today, but it, too, held as the day went along. This is basically the second test down on these averages. The third or fourth time usually do the trick with the third time quite frequently the winner. If we can lose 1174 over time we should see a really nice move down to the 1150/1140 area.
Once we get there, if we get there, the daily charts should all be approaching if not already at oversold. I think it’ll take the daily charts getting oversold before we’ll see any real appreciable upside. Doesn’t have to be the case, but, my guess is, that’s what it’ll take. Between now and oversold we will likely see many attempts at rallies, but they’ll all likely fail before getting going with any force. The lateral to down process is normally very emotional in its constant back and forth nature, so, please, adjust your trading accordingly, meaning less is more for sure for a while longer.
There are lots of reports this week we need to pay very close attention to. From manufacturing numbers to employment numbers on Friday, which will be huge for this market. Jobless claims on Thursday also huge. That weekly Thursday report gets a lot of play now as the market wants to see that number drop, thus, suggesting job growth has taken shape and is getting better week by week. A sharp move back up in claims will be very bad for this market, and yet, the next catalyst to get the daily index charts to lose their 50-day exponential moving averages.
The bears will seize the moment if the 50’s get taken out on a closing basis, so be aware of that. A loss of S&P 500 1174 with a little force, will get the bears feeling braver than they have in quite some time. They’ll attack those horrible financials first, of course. That area of the market has been their bread and butter for quite some time now. That world of stocks remains in a longer-term bear market.
There is only one way to play this market. SLOW and EASY!! Nothing aggressive long or short. Wait for the market to flash the right signal before getting aggressive again. Patience is the key word, which will help you preserve your hard earned money.
Peace,
Jack
