Stock Market Pessimism Pouring In...20's/50's Cap The Top...Mixed Tape...

Stock-Markets / Stock Markets 2010 May 12, 2010 - 04:06 AM GMT

Best Financial Markets Analysis Article There are many things to talk about tonight. We can look at the very short-term and extend out to the medium and even somewhat longer-term to see if there are any important messages out there we need to pay close attention to. When we look at the short-term we see that the market did a perfect back-test of the 20- and 50-day exponential moving averages before failing late in the day. Normal and anticipated action.

It looked for a while like we might clear above, but the bears took the stand expected of them. The bulls were able to get to those moving averages due to the artificial stimulus granted all of Europe and everywhere else for that matter just a few days ago. A cool trillion to cure those financial ills caused by poor risk taking and bad decision making. No problem. Here's a trillion for your bad moves. Market goes who cares why they got the money. They got it and thus all is well in the world.

I mean, come on, no matter who acts poorly, they'll just simply get bailed out. No worries!!! So we rocked on the news and got up to those 20's and 50's before failing late and thus we now stand a bit below that breakout area and far above the 200-day exponential moving average or critical line in the sand support. Short-term we're simply trading in a range that was made a lot more clear today. 20- and 50-day exponential moving averages at the top and 200-day exponential moving average at the bottom. Will probably be pretty boring for some time, but can be played when divergences set up on pushes higher or lower.

Let's look a little beyond the current trading range being established for the short-term. Let's look at possible good and bad news for the bulls out there and whether this market will ultimately break down or break out once again over 1220 in time. First, one for the bulls. For the past two days we have seen some very intense put buying in the options world. Folks are scared after that huge drop the other day and are now looking for protection, or hedging if you will, or simply thinking the market is doomed and are thus loading up on puts. This occurred on two straight days where the market was mostly up. Up big yesterday and up most of today, yet there were readings as high as 1.27.

That's very high and you'd think those levels would be printed when a market was crashing out, not moving higher. Very interesting and very strange to say the least. What it says is happening is what always happens when the market goes down in a big way. Fear is ramping fast and hard. It takes very little to do that as the truth is, greed is easy but fear is tough. Fear causes instant reactions. In this case, puts. Greed is cruise control. Greed is over near-term. With fear ramping, One for the bulls. Even in a good market, puts are exploding. A huge plus for the bulls as sentiment is no longer a concern.

Now, let's talk about one of two things going on that favor the bears. Markets around the world on breakdown. It's not just one or two stray markets, but basically everyone, everywhere. If you go to France or Germany, or check the markets throughout Asia, all we can see is one breakdown after the other through their 200-day exponential moving average. Nasty hard breakdowns that are the real deal. The breaks are extending as well, which is confirming things, and we, here in the USA, are the only ones not on full breakdown below those critical 200-day exponential moving averages.

We have lost our up trend while we trade below the 20- and 50-day exponential moving averages, but we have still not lost the 200-day exponential moving average. Foreign markets usually lead ours, and it would be unusual for our market to remain the only one standing as time moves on. There's no guarantee things fall apart here but it's a big red flag that we're the only one still not crushed below our 200-day exponential moving average.

Here's yet another one for the bears. Leaders are now being lost. Many are lost and many are barely clinging on. Not good to see. Priceline.com (PCLN) lost a multi-month gap up today after successfully testing that gap a few days after it took place. All tests in the months afterwards held easily. Today we lost it on a bad earnings report. Yes, there's a key word. Earnings!

Oil Services HOLDRs (OIH), or the proxy for the oil contract, is now trading 5% below its 200-day exponential moving average since it broke its wedge a few weeks back. Oil is now in a bear market for the time being. Walter Energy, Inc. (WLT), a leading commodity stock was annihilated today on earnings. There it is again. Earnings! Barely holding its line in the sand but a broken stock nonetheless. The numbers of those stocks are increasing daily. Amazon.com (AMZN), Google (GOOG), Cree Inc. (CREE), oil stocks and many others. Not good to see leaders starting to break as they are heavily weighted in the averages. When leaders go can the rest be far behind? We'll know soon enough.

Short-term we tested and failed those 20's and 50's I spoke about so it'll be interesting to see how far down we go from here. The one thing that's clear is that there will be positive divergences on any stronger move down on the 60-minute charts. Not the daily charts. Just the 60's. That's very short-term. Beyond that anything goes and we will play things as they set-up. There are some positives for the bulls and some very clear negatives as well. Interesting times are upon us. We must plays things very carefully from here. Day to day.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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