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Consolidation Extends...Bears Still Showing Little...

Jack Steiman from SwingTradeOnline.com at 12/21/09


Market Overview:

There are many things we can talk about when referring to the case that can be made by the bears. We have many leading stocks breaking down below their 50-day exponential moving averages. Goldman Sachs (GS) lost that level nine full points ago but is now starting to show some positive divergence on the Daily. JP Morgan (JPM), another financial stock and unquestionable leader, retested that 50-day exponential moving average and fell right back down with full red candle sticks, leaving little doubt as to the bears intentions on that issue.

Today we saw a downgrade on Potash Corp of Saskatchewan (POT) to sell, naturally adversely affecting Intrepid Potash (IPI), when it rains it pours, and POT collapsed down hard, losing that important 50-EMA. Apple Inc. (AAPL) showed a good recovery of our 50-EMA after losing it initially. Quite a few sectors are showing important leaders losing those 50's and this is a change of character no doubt. The Financials, after taking a significant hit the past couple of weeks, are showing some firming in some areas. We have these things going on and yet the S&P 500 is in the middle of its range for all intents and purposes. No break down. Nothing bad. Oscillators unwinding on those daily charts. By the time they get those index charts to approach the 50's they will be oversold. Doesn't mean they can't stay that way but that's reality.

See today’s charts at SwingTradeOnline: COMP (Nasdaq Composite Daily), NDX (Nasdaq 100 Index Daily), INDU (Dow Industrial Average Daily), RUT (Russell 2000 Small Cap Daily), SPX (S&P 500 Large Cap Index Daily), SPDR KBW Regional Index ETF Daily, (KRE).

On the bullish side of things it's quite simple really. Awful action in many leading stocks.
Banks stink yet the bears can not find the guts to bring this market to its knees. To press on the gas and get those 50-day exponential moving averages to be barely visible in the rear view mirror. The bulls are finding a way through massive rotation to get this market to hang in there. I don't necessarily understand it. In many ways it makes little sense. Rarely, if ever, do you see some of the negative's in place and yet see a market hold up above critical support levels. Unheard of really. They're rotating in to the small- and mid caps quite a bit as those sectors are working big time. The Nasdaq is also holding up well and strong earnings from Research In Motion (RIMM) and Oracle Corp. (ORCL) yesterday only helped the bullish cause. Lastly, bad news isn't getting taken as a death knell. While it's true good news isn't breaking things out, bad news isn't breaking things down either.

The S&P 500 has a gap top at 1109 from Thursday's action. A solid gap that won't be very easy to get back through. So while 1120 is the true breakout (1119 previous top), the bulls have to focus their attention on being able to get back through that gap. A gap down so close to the breakout area isn't wonderful news if you're a bull. This market has shown strange resiliency and thus may have no problem making that move but the truth is, it should be a real headache and one would think the markets going to need a real huge dose of currently unknown good news to make that gap become a thing of the past not to worry about. Gaps are real headaches, especially when they take place near big breakout or breakdown levels so please just don't dismiss it as irrelevant. It's very relevant and could become a major problem. 1109 is the top of that gap as I mentioned thus we'll need a good close over 1109 to sat goodbye to it.

The PowerShares DB US Dollar Index Bullish (UUP) ETF put in a Doji today at Resistance thus we could be setup here for some type of bounce into year end as seasonality tends to be positive through the holidays. We will be watching the UUP to see if this pullback serves to set a right shoulder in our pattern which if so would hold some potential to provide the market with some type of corrective move during the first quarter of 2010.

Bottom line folks is, we remain in consolidation between 1085-1120 on the S&P 500 and are parked in the middle of our recent range. Our bias remains for an upside resolution in time but if we are wrong and our 50-EMA's were to give way on the major indices we will adapt to what we see. We continue to avoid the short side in general as long as the market continues to hold our Rising 50-EMA's on the major Indices. You need to respect the message of this market which is one that suggests that the consolidation could continue longer than we'd like to think possible. Let's pray for resolution, one way or the other. It would be great just to have something in place that's truly playable. Until then, easy does it of course.


There are sentiment issues to deal with as the Investors Intelligence Survey (IIS) is showing more and more bulls out there with not too many new bears. The levels are not at extremes yet although it's not far away. This suggests that if we do get one more move higher, it would be the last one for quite some time as the bullishness would reach extremes that stop bull markets cold in their tracks. Watching this closely for more clues over the next few weeks.

Sector Watch:

The market continues to rotate from group to group. When some areas get extended they take a breather while other areas see rotational flow. Late week the Brokers/Financials started to see some rotation with the Regional Banking ETF up about 3% on Friday (see our 6th chart below). The Aerospace Sector continues to hold up well on balance. The Small/Mid Caps are showing some leadership qualities. While the Metals and Oil have been under pressure given the recent ascent in the US Dollar, the Dollar ETF, the UUP as mentioned above printed a doji on Friday suggestive that the Dollar is likely to take a breather soon and that tends to be a positive for equities.

The Week Ahead:

Same old same old folks. The usual does of economic news will hit and I'll be watching the usual 1085/1115-1119 levels on the S&P 500 for some guidance as to whether we finally break out or break down. It's hard to understand or predict how the market will respond to news as it gives head fakes both ways. Simple solution is to watch the critical 1085/1115-1119 levels.

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