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Markets Turn Late...

Jack Steiman from SwingTradeOnline.com at 01/28/10


The stock market needed fear. A bull bear spread of 37.5%.
Markets normally have a strong pullback once you see levels over 35%. It's not an exact timing mechanism but it was coiled spring looking for a catalyst. It found it and down we went. It was no small move down either as two and a half months of gains were wiped out in three days worth of market action. That's more than just ouch. Moves down are always more aggressive than moves higher because fear is a greater emotion than greed. Just the way it is. That will not change in any of your lifetimes. The same laws of the mind will be in effect one thousand years from now. Fear is a killer emotion and thus we saw a massive move lower once that fear started to kick in. Now we look just two weeks after that complacent 37.5% spread and we see the spread is down to 16.7% (40.0/23.3). Doesn't take long. You couldn't get a drop like that on the bullish side in just two weeks. Fear eats greed's lunch.

We started out lower today as the bears were continuing their march on the bulls. Each point down on the S&P 500 and Nasdaq were creating a deeper and deeper oversold condition on both the 60-minute charts and the daily charts. When daily charts get oversold it's best to call off the sellers and get ready to switch long. They had stayed oversold for quite some time and still are even after today's reversal. The market meandered about although mostly lower until later afternoon. The action started becoming more violent and that's usually indicative of a reversal, even if it's only short-term. The reversal hit and up we went. Nothing dramatic but a nice reversal off the lows on some solid volume. The rubber band got too stretched allowing us to close just off the highs for the day. A solid reversal for the bulls but now they have the burden of getting the indexes back through at least their 50-day exponential moving averages. It won't be an easy task.

The PowerShares DB US Dollar Index Bullish (UUP) cleared 23.21 on the close today meaning the dollar is on breakout but just barely. A close of 23.23 isn't exactly wonderful but it is a start. You could see how badly the commodity stocks were acting all day on this dollar move up and I would stay away for the part from that sector of the market until we see if the breakout is for real or just a slight breach that will fail in the next day or two. The market in total wasn't affected by this dollar move and that is good to see but reality dictates that the commodity world will likely always have a problem if the dollar spikes.
Watching to see how 23.21 holds or doesn't in the next few trading sessions.

Other parts of the market behaved poorly today as the industrials took a hit when China announced overnight that they're pulling it in some to cool down a very overheated economy. Many company's such as Caterpiller (CAT), Deere (DE), and a host of others will be affected adversely short-term and they took it on the chin a bit today. They're now very oversold so easy on shorting these plays near-term but the news there wasn't really longer-term all that good but we know how fast these things can turn right back around. in a market environment such as this, you have to be extremely nimble and you have to extremely careful where you place your dollars.

The Nasdaq and S&P 500 really need to get moving back up and clear back at least through their lost 50-day exponential moving averages. Those levels are at 1110 on the S&P 500 and 2228 on the Nasdaq. The Nasdaq is only a few points away but the S&P 500 still has a lot of work to do. If and when that gets accomplished, both sectors will need over time to take back their lost 20-day exponential moving averages at 1119 S&P 500 and 2258 Nasdaq. Not going to be easy from here, but for the very short-term at least, we should be able to trend somewhat higher as the oscillators are basically buried down and with stochastics just starting to cross bullish from low levels.

Things are still unclear bigger picture. The market worked off the excessive bullishness the way it usually does. With a powerful sell off that scares everyone in to thinking the world is going to end. Mission accomplished (A+). You can't be sure we're out of the woods by any means. This will be a take it one day at a time market for sure but for now things are not bad at all.

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