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Quiet Day...What Is The WLSH Chart Saying?

Jack Steiman from SwingTradeOnline.com at 11/05/09


I included that one tonight because it is the total market chart. It is not a very good looking one from the bulls perspective. It shows how it lost massive support when it fell below its trend line, 20- and 50-day exponential moving averages. Today it cleared back above all of those levels to get the bulls very excited. Problem was that the market trades for 6.5 hours per day, not 5.5. The last hour saw a long plunging tail, which allowed it to close back below the 20- and 50-day exponential moving average once again along with closing below the trend line. So much promise. So little in terms of results. The last hour big money said no chance.

When you study the chart tonight, look at that long tail. It says that strong upside isn't likely in the short term. So now the question becomes, is there a lot of down side available? I don't think so and I'll tell you why. The WLSH chart (Wilshire 5000 Daily), and all of the other major index charts, have one thing in common. They all have compressed stochastics on their daily charts. Roughly averaging only about 20 with crosses positive.

I believe this will help keep things from getting out of hand on the down side. Now keep in mind, I didn't say we wouldn't see downside here. I am saying it shouldn't get out of hand. The S&P 500 is at 1046, one point below the 50-day exponential moving average. I think it could fall 2.5% to 1020 if things get nasty. Beyond that, I don't see much more, if any. The WLSH doesn't look great and this keeps things more risky for new longs. We can do it in the right situation as we just did, but you have to be very nimble and extremely careful in what you choose. Also, buying weakness and not strength is the best way. The WLSH is throwing out a big red flag tonight, but it doesn't mean things get ridiculous to the down side. It simply says to be more than just a little careful out there.

The Nasdaq once again massively under performed today. Not what you see in the healthiest of markets as beta and risk assets lead higher. The small caps were also weak and that too isn't great because the riskiest of assets are located there. Again, no appetite for risk. Safety is the way this market is being played for now. This type of action suggests there is a lack of confidence from the big money. There were many more stocks up on the NYSE than were up on the Nasdaq. This type of action, which has been somewhat ongoing, also tells me things aren't wonderful out there since we topped out at 1101 on the S&P 500.

The Nasdaq closed at 2055. It hit 2081 today, two points above the 50-day exponential moving average, but failed with a long tail late day thus that 2079 level remains massive resistance for now. Above that we have the 20-day exponential moving average at 2102 and then gap resistance at 2111. Support is 2040 and that's a big number. Below that we go all the way down to 1960. Nasty if we break below 2040 on a closing basis. Make sure you respect that if it occurs. The S&P 500 has support and resistance at 1047. Fighting back and forth at that level. Above 1047 we have 1060, 1074 and then 1101. Below that we have 1020 which is massive support to say the least. Things are tight and there's lots of good news not getting played with further upside. The market looks like it needs to pause or fall further. The key is simply holding critical support on a closing basis.

We have a market that is tired. Mature, my favorite word. Good news is getting treated with a yawn now as this was built in. It needs a new catalyst to start rocking again. I don't know where that may come from. Maybe the catalyst is rest. A deeper pause. Earnings have been good overall, although many companies are getting those good numbers only on the top line but revenues remain flat when compared to expectations. Layoffs and cutbacks are getting the job done instead of the old fashioned way of expanding business revenues. The market recognizes this and is stalling out. Nothing terrible. Just tougher and tougher here. We will watch closely to see which way things break, but the bulls do have those low stochastics on their side, which should keep things from getting out of hand.

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