Stock Market Unwinding Without Price Appreciation.... Fed The Last Hope For The Bull

By: Jack_Steiman

When a market is in a certain trend up or down you watch how the daily oscillators behave to understand what's likely next. When things are more bullish you can unwind overbought oscillators without too much price depreciation. When things are turning more bearish you can unwind oversold oscillators without too much price appreciation, and that's where we are right now. We're unwinding oversold oscillators over the past fifteen days when the bear flag first started to form, yet all we've done is remain well below key-resistance flag top at 1993 on the S&P 500.

Not good news if you're a bull. It doesn't mean the flag still can't play out to the up side but time is most definitely running out on the bulls here. We've gone form 15 RSI readings to the low to mid 40 RSI readings. We've gone from near zero stochastic's to the sixties of stochastic's. The MACD has crossed bullish but it too is moving up without the market doing anything positive. When you have that much winding on stochastic's and on the RSI's you want to see the market break through the bear flag top at S&P 500 1993.

It's just not happening and worse than that, we're not even close to doing so. And this is what makes today so disappointing. The oscillators crept higher but price ran lower. Wasted energy with this type of behavior most often equated with a bear market or at the very least, a nasty down trend under way. With fifteen days in on this bear flag pattern, time is running out on the bulls since the longer you stay in a pattern the more likely it is to play out on a continuation basis. No guarantee as nothing is guaranteed in this crazy game, but the bulls can't be happy with the way things are playing out for the short term. Today was yet another day in the bear flag that favors the bear side of the ledger.

The bulls have one real hope left to try and get this bear flag to disappear. It's the usual hope and one they sadly have to continuously hold onto, since fundamentally they won't get much help. In other words, the real world favors the bears. The market, it appears to me, is getting very tired of the uncertainty of whether we'll see a rate hike at every fed meeting. I now fully believe that the market actually wants a rate hike. It wants Fed confidence since it believes the only way the Fed would raise is if the economy here and abroad was actually on the mend. The market, I believe, will be disappointed if we don't get a raise, since it shows a lack of confidence on how the real world is moving along with regard to economic strength.

There's now talk of a .125 rate hike. Let's move on already. Show some confidence and raise a quarter, and satisfy the market that wants some good news to work with. I truly believe a rate hike is good news and no rate hike is bad news, but we shall see how the market reacts once the news come out. The really important thing about this meeting in the end is this may be the last hope for the bulls to break the bad news from this bear flag. If the news from the Fed doesn't stimulate the bulls to take charge it's quite likely the next leg down in this market will begin. The Fed may be the final hope, but from a very different perspective than we have become accustomed to. I think the market wants a hike. Interesting times for sure.

Look folks, times are tough for the market and for everyone playing it, whether longer term or shorter term as a player. It's quite possible we're in the beginning process of a bear market taking over from this long-term bull. Bull markets don't end easily, and thus, it can take many, many months. It's a frustrating time for the bulls, since hope gets wiped out over and over again. Take last Friday, for instance, where we had a great close. Buying was the name of the game over the last fifteen minutes. Futures were up after hours and very strong last night. SPY futures were up over ten points, but that was all gone by this morning. We need to watch this flag closely. Only if we lose 1867 on a closing basis do we have to turn even more bearish than things already are. We take it day by day, but we will have a much greater understanding of how things truly are once we hear from the Fed on Thursday.

Keep it very light.

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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