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Good Selling....

Jack Steiman from SwingTradeOnline.com at 11/19/09


If you're still bullish overall as I am, although nothing out of hand, then today is what you wanted to see. There was a chance for a lot more selling than we saw based on two very poor economic reports that came out pre-market. A very low number of new home buyers.
80,000 shy to be exact (520,000 vs 600,000 expected). Also, a higher than expected Consumer Price Index (CPI) (cost of prices to consumers) at 0.3 vs 0.2 expected. Both numbers poor. Each one by themselves is enough to take a market down hard when it's right at resistance and overbought on the daily and short-term charts. (I was even a little cautious and that’s why there’s only one position, Anadarko Petroleum (APC), in our model portfolio.)

Once again the selling wasn't too dramatic. Enough to unwind the short-term charts down to just about minimally oversold. The daily’s remain overbought. The futures, which were decently green pre-reports, tanked some after they came out causing a small gap down at the open. The bulls, as usual, bought up the move lower, but that didn't last too long as sellers came in and took the market lower throughout the day, although no one, at closing time, would say much damage was cause technically because quite simply, there wasn't any. Lighter volume as well and, although volume isn't very relevant unless it's at levels of major breakouts or breakdowns, it was good to see the sellers remain mostly inactive as the markets unwound from overbought.

See today’s charts at SwingTradeOnline: SPX (S&P 500 Daily Charts), COMP (Nasdaq Daily Charts), INDU (Dow Daily Chart), XBD (AMEX Securities Broker/Dealer Index Chart).

The key to any bout of selling caused by bad economic news is to see whether the bears are able to take the markets down to critical areas of support, showing they have the fire power to bring this market lower. They were unable to accomplish that today. This doesn't mean they won't get the job done the next day, but it was a positive for the bulls that we came nowhere near the next level of support on an index such as the Nasdaq, where there's important gap support from 2178 down to 2170. If that level were to be threatened then we'd have to put up a short-term red flag but for now, two pieces of bad economic news caused only a bit of selling that didn't come close to taking out that massive gap support zone. This tells me that although it seems weird based on what's going on out there in the real world, the market remains a buy on pullbacks when the short-term charts get oversold. Nothing aggressive while the daily charts remain overbought but there are windows for quick plays to the long side.

When studying sectors I see little in terms of breakdowns. Everything is selling off the top of their wedges but if you look at real estate, transports, retail and others, they are still holding up quite well overall. If I begin to see any of these start to, not only crack, but break down below their key support levels, this will be a red flag we need to watch. When studying a market we need to watch everything for red flags.

This is just another of what we have to look at. The financials need to be watched especially close as they are being trashed by many of the big timers on Wall Street. If they start to lose their support the market will fall and fall hard. This is why you don't just go out and buy a long-term portfolio. There is still huge risk, although AI doesn't think we'll see any of that heavy risk come to fruition any time soon. I still feel we'll hold up for some time to come but there will always be bouts of selling, and I'll be watching to see if anything inappropriate takes place for the bullish trend in place.

Now, let’s explore the many support areas the bears need to take out to get their side of the story to be more believable. Let's start with the Nasdaq. Support comes in at gap from 2178 down to 2170. Below that we have the 20-day exponential moving average at 2142 and finally the big one at 2106 or the 50-day exponential moving average. That number along with the 20's rise slowly each day, especially the 50's.

Shifting to the S&P 500, we see support at 1083 or the 20-day exponential moving average.
Below that we have gap at 1070, not to mention the big one not too far below that at 1062, or the 50-day exponential moving average. Again rising slowly daily. Rising 50-day exponential moving averages are a sign of strength. The Dow has its big 50-day exponential moving average at 9880. A long way off. Anything above these 50's are just noise on selling. It feels bad but not relevant. Also, you'll need to lose all the 50's in unison.
Not just one or two but all three together. A tough and somewhat frustrating market if you're over playing, but if you've been going slowly and making a few dollars overall, you're fine.
Do not play hard here. Play, but be appropriate.

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