Stock Market Daily Charts Are Fine...Weekly Charts Are Not.....Implications?

By: Jack_Steiman

The weekly charts are all wrong. The MACD negative divergences, along with negative divergences on the stochastic's, RSI's and histograms make for a very ugly picture. Then there's the daily charts. Nothing really bad there. Nice looking MACD's. Strong RSI's and stochastic's. So what is the message? It's really hard to know, but if we go back in time, the last time the Nasdaq had this type of negative divergence, when it finally kicked in, it was a 13% drop. You never know when it'll kick in, but that was the situation. It doesn't have to be so bad this time, or it could be worse, or obviously somewhere in between. Add in grossly overbought monthly charts and you get the idea things could get ugly soon.

However, and this is a huge however, you never know when it will kick in. We may break out above 1850 first, only to see that become a head fake. There's always the possibility that the negative divergence will be ignored until we get to 1900. The point is you recognize the risk and adjust accordingly. It means, due to the fact that the daily charts are fine, you can have some exposure, but not too much, and probably it would be best to avoid the froth world for now. The message is very mixed, and because it is, you need caution. It would also be best if we just fell very hard for a while to allow those nasty divergences to work themselves off. If that occurred, the road would be clear for more aggressive playing on the long side of this still ongoing bull market. For now, we proceed with caution. Another test of 1850 was rejected today, so, for now, we're still in a range. Play, but play appropriately.

Just because we failed today doesn't mean that we're about to fall hard. We have tried a few times, and each failure bought about a small pullback that was eventually bought back up. That process could repeat until we get through. However, at some juncture enough failures usually equates to a stronger move lower, thus you have to be prepared. We all know by now there's a cluster of support zones from about 1815 to 1800. Anything above 1800 is merely noise with regards to selling. A strong close below gets my attention on the bearish side for a run potentially much lower.

This range is rather large for the S&P 500. Roughly 50 points or nearly 3%. It's much easier to trade a range defined by under 2%, but we play the cards the market has dealt. It would make sense to try lower from here, but this latest time period, when opportunities have arisen, have shown the bears to be very timid. That doesn't mean it'll remain that way. Not by a long shot, but the onus is on them to prove they can do something to make the technical picture turn more bearish. This is a very important time here for both sides. That said, some selling above 1800 doesn't mean we're about to crash out as many will claim. Once we sell you'll hear the bears chatter quite a bit. See it before reacting to it.

The bulls are getting more active in terms of complacency again. The bull-bear spread nearing 30% to start the week with a strong ramp in the number of bulls last week. With this week's mostly-positive action we may be over 30% on the spread once again unfortunately. Another possible reason for some selling back down towards 1800?

Perhaps, but again, you can't be sure and you shouldn't front run it. These are very interesting times, but we have this huge 50-point monster to deal with in terms of important support and resistance, so it's become more difficult to play. I would prefer to see the spread down to 20%, or lower, over time, but that would require a break below 1800. If that does happen, the numbers will come flying down very rapidly. It would be good news for the bulls, even though it won't feel that way.

Again, for now, some exposure is fine. Too much is not. It would probably be best if you don't chase around too many of those classic froth stocks for a while longer.

Have a nice weekend!

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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