Not Pretty For The Stock Market Bulls......

By: Jack_Steiman

There's so much to say, and yet, so little to tell the tale. Let's start with Friday's action. We came into Friday extremely oversold on all the normal time-frame charts we follow. The 60-minute, and daily charts, are at very oversold levels, especially the daily index charts, which rarely, if ever, get to 30 RSI's in an ongoing bull market. We entered the day averaging 26 on the RSI's, on all the important index, daily charts. So we bounced hard today, right? Nope!! Not one bit.

More down side action with the 200-day exponential moving averages was totally disrespected by the bulls and bears alike. The bulls could do nothing to stop it. The averages closed just below their 200-day exponential moving averages yesterday, thus, there was plenty of time to get right back through. Who didn't think it would happen at such deep levels of oversold. It didn't make it two days below that key level, now resistance, but was recently massive support. We reached levels of RSI's on the daily index charts today you NEVER see, if we were in a bull market. Readings in the low 20's just doesn't happen when things are more positive. You can draw whatever assumptions you like, but based on historical data, it's unlikely we're still in any type of bull market, based on those very low RSI readings across all the major daily index charts.

It's not impossible, I guess, but history says that's just not a good thing for the bullish case bigger picture. At the close of action, we saw nothing to get excited about. Nothing to suggest today was the bottom, even though you'd think we absolutely have to bounce on Monday, based on these incredibly compressed oscillators. We seem to be too oversold for any more downside action short-term, yet, there is still no evidence that says Monday is the day when we finally bounce hard. These types of bounces can be violent to the upside, thus, I wouldn't recommend shorting these types of market conditions. It's best to just stay out of the way.

Facebook (fb) came out today with a load of hype behind it. This is the most anticipated stock Initial Public Offering, basically, ever. The stock priced at the high end of 38.00 last night. Most expected a huge jump in the stock price. It came out at 43.00, and went immediately to 45.00. Favorable action for sure. It didn't last long, however, as the sellers piled in quickly taking the stock down to the price offering. It was very bearish action for such a highly anticipated stock. At the close the tale was told. It was bear-market type action. The underwriters were so desperate to hold it above 38.00 that they refused to let it drop. Seems like illegal behavior to me, but there were bids the size of 9,999,900 every time it ticked to 38.00 flat. They were desperate not to let it drop below 38.00. A real embarrassment. Every time the stock would tick above 38.00, even if just 38.01, the bid size would drop to normal every day levels.
Can you say market manipulation? You sure can, folks.

Not a word will be said about it, though. Guaranteed! When a stock of this nature, with all the hype, can't bid, it means the market is transitioning from bull to bear. No way to be 100% sure, and tonight you'll see charts that clearly define the line in the sand for indexes. A little insight there is that the Nasdaq 100 needs to hold 2650, and the S&P 500 1250. It'll be clear when you look at the charts this evening. Facebook told the tale of the market today as much as anything else. Not good for the bulls at all.

Calling Mr. Bernanke. The market is calling. It wants this man to get rocking with another QE program, even though it won't work and would be totally inappropriate. Anything to help with the political situation at hand this year. The world is in terrible shape from Europe to here at home. The Philadelphia Fed Report two days ago suggests many parts of this country are already in recession. A huge minus reading came out of nowhere. This on top of other reports that have showed things are clearly on the decline. Earnings haven't been great this quarter in terms of future guidance. Always exceptions to the rule, but the majority of leading stocks have been crushed on their guidance reports. I'd like to say, especially in the commodity world, but it's really just about everywhere you turn.

Mr. Bernanke is going to be under tremendous pressure to act sooner than later as our stock market heads lower. He knows better than to panic, but if the pressure gets bad enough, you get the feeling he'll crack and hyper inflate again. The majority of people cannot deal with it, but if it helps save the stock market temporarily, he'll do it simply because he knows the stock market is the wealth of this country. If the market goes away, so does the economy. If that should happen, then he looks like the bad guy. So the next several weeks will be interesting in that you'll probably hear more and more rumors about the coming of the next QE program. Rumor will eventually turn into reality, I'm afraid. The heat is on Fed Benanke now. Let's see how he handles it.

Leader after leader, in sector after sector, has broken down. The key here isn't so much that they broke in price, which, of course, is huge, but that the break downs were done on some huge volume days. You want confirmation. We got them. The gap downs are enormous with that volume, thus, any move back towards those breakdowns will be sold heavily by the money that made it occur in the first place. Many folks won't come rushing in due to this technical damage, therefore, hard sustained rallies won't be easy to come by, although we will have some powerful one-day moves higher from deeply oversold levels. They can really be powerful, thus, you really don't want to short the market when it's this oversold. You need to see the RSI's come out of the 30 area at the very least. So leaders are broken. Volume has confirmed. We're staying oversold longer than normal. We've lost the 200-day exponential moving averages. On and on it goes.

It's starting to smell like a bear market, but only if we lose those long-term up-trend lines off the last bear-market lows, can we say with certainty that the bull market is dead. 1250 and 2650 are those key levels, and again, you'll see them in this report tonight. Be smart. Cash is a wonderful thing for now. Watching 1292, which is now the next area of support followed by 1260/1270, and then the final line in the sand at 1250.

Have a great weekend everyone!

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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