Stock Market Sentiment Plunges Further Still.....Price Action Weak....

By: Jack_Steiman

It's really amazing how fear ramps so much faster than froth ever could. Put a good scare into folks and they run for the hills faster than you can blink your eyes, or, for that matter, hit the sell button. Trust won't ever come back the way it had before either. It's been too long with the market going nowhere to down. Very few, if any, strong, sustained rallies, and after a while it becomes a belief that they'll never come any more, thus, of course, they will, but it won't be easy to turn people bullish any longer. They're scared to take any real chances, since they've been burned repeatedly over the past many, many months. So naturally fear took a turn down further after the rough action from last week. Two weeks back we were at minus 2.2%. Last week it went flat at 0%, but now we're back down, and this time it's minus 4.2%. The lowest reading in quite a long time, and the third week at, or below, zero.

Short interest as well is at record highs. Pessimism is on the rise, and that is music to the ears of those bulls who are left out there, but still not necessarily all it will take to possibly get back to those old highs. Since fundamentals are really poor, and seemingly only getting worse, it's sentiment that's saving the bulls from a full-blown bear market. That will likely have to wait until 2016 to get rocking in a much more sustainable way. Bull markets take a long time to end, and sentiment is such that another test back up is quite likely, but definitely no guarantee. All of that said, the market whipsaw to nowhere continues, but with a down-slanting slope in price. Sentiment should blast up at some point soon, but the market needs a catalyst we don't see at the moment to get it started. It'll come out of nowhere, but it hasn't shown itself quite yet. There are so many shorts in the market that the rally should be powerful, but timing it won't be easy.

In the end, it's all about price action, and, of course, how those oscillators react to it. As price has drifted down the oscillators have acted in a way that says the selling isn't for real, which is why you just don't want to jump right into the long side and let it ride. Oscillators have moved down with price equally in my eyes, thus it tells me that before I buy into the pessimism that's out there, it's safest to do so when we get the proper combination of bottoming sticks along with oversold conditions. If we throw in a positive divergence that wouldn't hurt, but we can, and probably should, bottom before testing down to the old low on the S&P 500 at 1867. While pessimism is screaming upward please remember how long it took for the market to fall, even with all the froth that was out there. That said, you can try to anticipate a bottom, but it's always best to get a gap down that hollows at the end of the day with strong volume meaning on balance buyers once we gap down at the open.

Bigger volume tells you some big money was involved, and, thus, makes it safer to test the waters. Nothing has been, nor will it be, easy from here on in, and possibly so for a year, or two, as the topping process bigger picture takes place. Again, a new high, or near equal high, is quite possible, but, of course, no guarantee. The right catalyst will cause a massive short covering rally, which unto itself can bring us up to the old highs. Short interest is currently that strong. All of that said, taking nothing for granted regarding price just because of the pessimism that's out there. Trying to front run the rally can be hazardous to your pocket. Let the right combination take hold on those oscillators and candle sticks, and then move in. Slow and easy all the way around. Have those constant chats with your pointer finger.

S&P 500 1965-70 are two areas of strong resistance, since approximately 1965 is the back test of the broken wedge, and 1970 is the 20-day exponential moving average. If the bulls can clear those two levels with a bit of force they have a chance to get to the next headache at 2009, or the 50-day exponential moving average. Nothing will come easily, of course, especially when you have two critical resistance levels so close together (1965/1970). A gap above is how that type of double-area of strong resistance gets taken out if it's going to happen. Don't force the game here folks. Itchy fingers can cause you harm. Whether you trade recreationally, or do it for a living, you have to approach it with the same discipline of risk/reward. Support comes in at 1903-1911, or recent lows on moves down. We can only take this one day at a time. Take it slow please. The game is not very safe 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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