Stock Market Laterally Painful...

Stock-Markets / Stock Markets 2016 May 20, 2016 - 07:31 PM GMT

Writing this newsletter is getting harder and harder these days as the market is incapable of moving sustainably in one direction. Just when it seems one side has control that control gets taken away. You get perfect action from the bulls. They break up through resistance only to have things reverse the very next day. The bears start to make a move for themselves. Just yesterday we tested below 2040 horizontal support, and then tested almost to the point at 2023 (2025 print), which is the 200-day exponential moving average.

By the time the day ended we not only held 2023, but closed back above 2040. Both sides get very close to doing something special, but then it simply reverses either that very same day or the next day. No real reason behind this, but that's what occurs. So let's explore maybe why neither side is getting any real love. The bears would have to think things are going their way. We still have those very-nasty, monthly negative divergences on all the key index charts.

We also have economic news which continues to deteriorate. Add in the S&P 500 trading near 24 on its P/E, while earnings are in decline. Finally, we have the fed telling us rates are about to go higher. Markets normally hate this type of news. So what do the bulls have on their side? Nothing, to be blunt. Earnings are definitely in decline, and now they may be losing the fed for the first time in many years. It's not a lock yet, and maybe the bulls are holding on in the hope that she'll change her tune as the weeks move along, but other than that hope, things are not going their way. That said, there is still nothing bearish occurring in an environment that's begging for lower prices. Go figure!

Just take a look at this week. How many times we tested key levels of resistance and support. The bears took out 2040, or horizontal support, and then made that mad dash to the 200-day exponential moving average. Long tail occurred the moment it got there. No rhyme or reason for that save. The bears have things going their way. Just kill the bulls. Stomp on them. Your opportunity is right there in front of you. Not to be. The bulls come in, and with no resistance by the bears whatsoever, they move things right back up. They close it over 2040, so now they are focusing on 2060 or the 20-day exponential moving average. They get there today. All looks good. The move is about to be made. Not to be. Rejected. Not killed, but rejected.

It's a game of tag with 2085 being the longer-term resistance level, and now 2024 being the key level of support. If the bulls can take out 2060 they'll set their aim at 2085. If they take that out they are in business, or at least one would think that'll be the case. If the bears take out 2024 they will have all of the key index charts trading below the 20, 50, and 200-day exponential moving averages. A victory for sure. They'll have the bulls where they want them. At least it would appear that way, but that's their goal. Take out all key moving averages across the board. All of that said, we're nowhere. Neither side has control, and dance back and forth to absolutely nowhere. Draining emotionally, which is bad news for traders for the most part. Maybe next week we'll get more clarity, but I wouldn't hold my breath waiting. Keeping it light is the best and only way for now.

Crazy as this sounds, maybe it's all about the short-term sixty-minute charts. In a nearly impossible market to read, perhaps playing the RSI 30/70 rule is the best way to go about things from a trading perspective. Buy 30 RSI's. If the market gets oversold go long at, or near 30 RSI, and if the market gets overbought with readings near, or at 70, RSI go short or at least remove your longs. With nothing else to truly go by sometimes using the RSI 30/70 rule can take all of the motion out of the game and help you out in terms of making the right decisions. Forget about what something looks like, just play 30/70. There really isn't much more to go on. Great set-ups long and short simply aren't working out as well as in the past. Best thing to be is mostly cash. Taking it one day at a time, and watching S&P 500 2060, and then 2085 and on the down side, watching 2024.

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.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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