And that’s being kind. The market that goes nowhere has been seeing the bears gain some slight edge lately, and we saw that in the action today. The leading headaches for the bulls, the financial and commodity stocks, took it on the chin again today. The financials back tested their moving averages late Friday, and plummeted hard today after being down only a little bit early on in the day. In fact, the markets were up decently early morning only to see things erode once again as the day wore on. This is becoming more common than we’ve seen in quite some time. As the day wore on, we slowly grinded lower with those frothy stocks on the Nasdaq leading the way down.
The S&P 500 and Dow joined in nicely with the commodity and financial stocks almost as bad as the Nasdaq. Bottom line is the market is acting a bit more bearish for the short-term than we’ve seen in a while, and this must be respected. With so many different sectors starting to join in on the selling, it’s hard to see the market rocking higher any time soon. That is, until the fed announces QE3. It’s coming, but we just don’t know when. Hopefully, it’ll never come, but as day turns to night, it will. For now, cash is good. The market losing its volatility, and thus, moves are less and less violent, but the trend is turning more south than north, so adjust, please, to what’s taking place technically. It was a good day for the bears.
The financial stocks are at it again, and we all know by now, that Europe is in terrible financial condition, and thus, the financial stocks are by far the most at risk here for the foreseeable future. Perfectly understandable as the wrong default could lead to a global financial melt down. Don’t take that lightly, folks. The situation in Europe is really bad. No one has any answers, and if they were going to, you’d think they would have acted on it by now. They haven’t, and that’s all the warning you need.
This could take many years to unwind down. It’s not just going away because we wish it would. The problems are deep and long lasting. The worst, if it happens, could make things tough on everyone across the globe for a very long time, thus the financials are the one place you don’t want to be in. Let others go there. You probably should not. The risk is just too deep. Yes, the fed will give them an artificial boost sooner than later, but it will be temporary. Not long lasting by any means. To me, the financials are still not a safe longer-term investment, even though they’ve been hit quite hard for so long.
The more I look around the more I’m seeing bear markets within a lateral market. The commodity world, once the strongest place to be in this market, is now in a very nasty bear market, with basically every stock in that world trading below all key exponential moving averages. The problem there is the breaks below these moving averages were done on high volume and more importantly, with a gap down. The gap downs at times weren’t even back tested. Some were, and some were not. Awful action. The worst of it coming after the fed offered up no more free candy.
When these sectors break, you need to be patient if you want to own them by looking for reversal candles after the daily charts hit 30 RSI. Just getting in because you think they’ve gotten cheap is not the best idea for now. The breaks are hard, and yes, there will be reflex bounces, but these stocks are clearly broken down for the moment. When the commodity and financial stocks are in bear markets, things are difficult at best for the bulls.
The S&P 500 is now below 1225 for four consecutive days, with the bigger move down today confirming how tough that level will be to take back. 1195, or the bottom of the gap, is now major support. 1225 is resistance with 1265 the big one for the bulls which, for now, is not even worth mentioning. Below 1195 is gets interesting. 1160 provides some horizontal support, but twenty points below that we have 1140, which is very long-term trend line support on the weekly charts. If that level goes away, things will likely get very ugly for the bulls.
Things could get out of hand very rapidly, so they’ll need to keep a strong focus on that level of massive support. The bulls have lots of gap ups along the way off the bottom so moving through support level after support level seems to be taking a lot of time. Unless we get more bad news it’ll probably continue that way. If the worst comes along then we could get to 1140 faster than we think possible. Interesting times and not such good ones either.
Peace,
Jack
