Stock Market Poor Action....Still In The Range.....
Stock-Markets / Stock Markets 2011 Nov 17, 2011 - 02:24 AM GMTBy: Jack_Steiman
Today spoke volumes about the type of market we're in right now. It's a market that can't break out, seems to be clear to all of us now. A market that has been moving laterally is more of what we're seeing, but with today's action, we may be ready for some much deeper downside action. Let me explain.
I've been around for a long time, and today I saw the two highest prints of the put-call I've ever seen. 2.77 and 2.03. That's unheard of levels of pessimism which almost always leads to tremendous rallies. It looked good early on as we rallied 160 Dow points off the lows. The natural move from there would be to continue the rally higher into the close with the market up triple digits for the day. Instead, news from the ratings agency, Fitch Ratings, on bank exposure to European banks, crushed the market in the last hour. That's not really news and should not have had such a profound negative affect. The market should have been able to shrug that off, but instead, it didn't. It collapsed two hundred points straight down, and closed, basically, on the lows for the day.
That was awful action in the face of 2+ put-call prints consecutively. I still can't believe the market fell so hard. Bear markets can be tough, but with those two readings, the bears should have melted away. But they did not. They roared back with relative ease. All I can say is wow. Good for them. They accomplished today what I would have thought impossible. Bottom line is the bears can call today a slam dunk victory. Maybe things are different this time. I don't know, but today was different, for sure, considering how high the put-call was today. Maybe we are in 2008 all over again, but this time Europe is the culprit. It was bad day for the bulls, for sure.
From a true technical perspective, today wasn't a breakdown. The action was awful, but the market still hasn't broken down below its 50-day exponential moving average. That level is currently at S&P 500 1224. Only a forceful break below will give the bears the ammunition they need to take the bulls down to their knees. They're closing in, but do keep in mind we've been here before. We've seen the bears look like champions only to have things reverse on them in the next one to two days. Last Wednesday, we were down nearly 400 points, and things were a mirror image of today. All hope looked lost. While this may be true, you have to see the break below 1224 with some force, and then fail on a back test to know the bears are in total control. The bulls aren't dead yet, but things do look quite bad for them. That said, see the breakdown below S&P 500 1224 before throwing the kitchen sink at shorting.
Weighting! weighting! And more weighting! Our bank stocks have a tremendous weighting on the averages. If they come under severe duress, the rest of the market is almost guaranteed to follow them down. The market has tried at times to bifurcate from these losing stocks, but if they get hit hard due to banks going down, or countries going down abroad, they will get slaughtered, and the market will have no chance to continue bifurcating. That will cause a loss of key support levels. That would be market death for a while.
Our financial stocks have some very decent exposure to the European mess, and if they default, we will see some financial stocks crash right here in the united States, which in turn, will bring about a recession. It will also guarantee the next round of stimulus in the form of a powerful QE program in order to stabilize those banks. ( Bank of America (BAC) and JPMorgan Chase (JPM) each lost 3.7 percent. The Goldman Sachs (GS) dropped 4.1 percent and Morgan Stanley (MS) 7.9 percent.) For now, and the foreseeable future, the bank stocks are under the greatest duress, which could cause our market to fall much harder than we'd like to think possible.
For this market to be considered a bull market the following would have to take place. We'd have to break through S&P 500 1275 and run up to massive trend line resistance at 1325. We'd then fall back towards 1275/1260, and explode higher once there. Ultimately, we'd then break above 1325, and the bulls would be in full control. The technical set-up is getting less and less positive for the bulls, especially if we get one more strong gap down that can't be recovered. There would be too many open gaps from lower levels to allow for anything resembling a breakout to the upside. The action is overall neutral, but today definitely put the market on alert for that next big gap down that doesn't get filled. Thus, that would create exactly what the bulls fear most, another large open gap that seals their fate negatively.
The market is in real danger here with news coming out so bearishly day after day from Europe. It didn't take much news today to bring the market down huge late in the day. The wrong news could take this market down 500 points or more in a day on the Dow. There's no news for the bulls to bring them those types of gains. The range won't last forever. It'll break one way or the other soon enough. Today was bearish. The bulls need a miracle here to prevent the next big gap down, which, if it occurs, will likely start taking us below S&P 500 1224. We closed only 1% above that level today at 1236. It's do or die time for the bulls here.
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.
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