Stock Market Finds A Way...But On The Edge Of Breaking Down..

Stock-Markets / Stock Markets 2010 Aug 24, 2010 - 04:33 AM GMT

Breaking markets down is never an easy chore. The problem for the bulls is that they have yet to get the type of news that would allow them to break this market out, thus the stalemate we are seeing for the past several months. All the bulls need is a little good news to get them moving higher. It needs to be soon one would think, or the floor may finally fall out form underneath them. 2170 is a key level since that's where the long-term up trend line comes in off the March 2009 lows, and on the weekly chart. 2167 is the 70-week exponential moving average. A strong confluence of support the bears just can't seem to make happen with force for themselves. A good start today, but no force yet.

So for now, all the bad news just can't get this market to break dynamically lower. We have big news on Thursday from the jobless claims report and the bulls want anything below a 5 handle again. On Friday we have the GDP growth report. If either one is even slightly good, you get the feeling we will run higher for a while towards the top end of this nasty triangle. If both reports are bad, we might finally get that break below, but you as you can see, it won't be easy for the bears. For now, the bulls are walking on the edge, while the bears bang their heads in disbelief on how this market holds up as well as it does. This is the reason for such a light amount of playing on my part. Only if the bulls can blow through 1100 on the S&P 500 can we feel better about being long, and only if we lose Nasdaq 2170/2167 with force can the bears feel good. A start today, but again, no force yet.

There is one red flag that I noticed that's worth talking about. Market Vectors Agribusiness ETF (MOO), which is the agriculture ETF, is flashing a negative divergence on the last high it just made with a black candle on top of that bad divergence. If that does play out, it means we will start to lose the best performing sector around. The divergence is clear as can be, and yes, there are times when divergences have fought and won on the bearish side. It doesn't happen very often with it looking this bad, thus you have to think there's always the chance we'll lose this sector from a bullish perspective. That definitely would not be good for a market where there are already lots of headaches with sectors such as Financial and Retail sectors, to name just two. There are many others in big trouble, so losing the commodity space would be bad news for the bulls. There's lots of good support in that sector, so breaking it down won't be easy, but the bad divergence is a bad sign short- to medium-term.

The internals are more a concern for the bulls. The volume trends are really poor, and when comparing advancers over decliners overall, the majority of stocks remain in an overall down trending pattern. On the up days, we're just not seeing an explosion of advancers trouncing decliners. On the bad days, the advance/decline line is often 3 to 1 or worse. This says that, even though the bulls are hanging in there very well, they're not exactly showing the internals that suggest much higher prices dead ahead. Of course, one good report can and would change all that, but the numbers say the market isn't exactly seeing much in terms of good news on the immediate horizon. We'll know if that's true shortly.

1100 S&P 500 remains strong resistance. 1080 is also pretty strong now. 1100 is the key though. 1050 is the big one the bulls need to defend. Same is true for Nasdaq 2170, down to 2167. Long-term up trend line off the 2009 March lows, and the 70-week EMA as I talked about earlier in this report. If we lose 2167 with force, we can fall hard and fast. Big "if" but that's what we need to watch. Whichever goes first with regards to those levels will finally create more of a directional move instead of this nauseating whipsaw. Until then it's all noise. 2159 is not force for those who are wondering why I say that, but it's getting very close. A close at 2150, or lower, and I will feel more like there's force behind the move down.

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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