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Reversal At The Top....Consolidation Is Alive!!!

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


I know today feels bad. It looks bad as well. A nice rolling top now in place with those MACD's and stochastics crossing and pointing lower. Every reason to believe, if you're a bear at heart, that the end has arrived for this rally. That may well be the case but by no means is that the case with what we have at today's close. The indexes are still above those critical 50-day exponential moving averages. You can anticipate if you like that they're going away, but I prefer not to do that as we have had many moves down to those 50's and each time they seemed doomed. Each time the bears failed miserably. Now, I will admit there are some things alive now for the bears that were not alive the past few attempts down here. I will get in to that later on.

Today's action took the daily chart oscillator's and put them in some bearish looking patterns. Hard to argue that, no matter how much you try. The MACD's have now crossed pretty hard. They were riding the flat line for some days but now have made the real cross lower. Fast line or dark line is now below the slow line or red/orange line. That is not up for argument as it's right there. You will be able to see that quite clearly tonight in the charts. The stochastics have done the same.
RSI ready to give up the critical 50-level shortly. Not there yet however. So today was down and down decently, but before you go out to celebrate because you're a bear, you have a lot of work left to do. You have a sniff of delight but nothing more at this moment in time.

Here's one for the bears. In fact, more than one. Apple Inc. (AAPL), the leader of all leaders in the land of the Nasdaq has broken down. No and's, if's or but's about it. It broke below its 50-day exponential moving average without even a whisper of a fight. AAPL? Without a fight? That's exactly right. No fight whatsoever. Rolled over like a trained puppy. It's almost impossible to believe that AAPL would not fight at its 50-day exponential moving average. No stock gets bid up at support historically the way this one does yet it didn't fight at its most important level of support. To make matters worse, it broke down and did the classic retest of that broken level and rolled right over. Only weak stocks do that.
AAPL? Yes, AAPL!! It joined the ranks of the weak. Hard to put that together in a sentence. AAPL and weak. If AAPL is weak then it suggests that there could be some real trouble brewing. Goldman Sach Group (GS) is also dreadfully weak.
The big leader in the financial world is actually weaker than AAPL as it broke first.
Two kings of the market in trouble. The bears love that scenario. Now let's see the bears do something about it.

See today’s charts at SwingTradeOnline: INDU (Dow Daily), SPX (S&P 500 Daily), WTIC (Crude Weekly), SPDR Gold Shares (GLD) Gold Daily, USD (US Dollar).

Another big red flag today came from the oil or the oil services ETF. This ETF was sitting on its up trend line off the march lows yesterday. A perfect place for a good bounce. After all, it has been bouncing there over and over throughout the up trend. However, it did an AAPL by not even fighting at this trend line of massive support. It broke cleanly and collapsed. Not the action one sees in a healthy environment. All back tests will not likely be sold unless something comes out of the blue and reverses back over that up trend line. Not the best of odds for that to become a reality.

Now let’s talk about possibly the biggest red flag of all for this market. The PowerShares DB US Dollar Index Bullish (UUP) or the dollar. UUP or the dollar.
This broke out above its 50-day exponential moving average today on its daily chart. 22.53 was the number and with today's close at 22.59, this is a major change of character. Now it's not a blow out break over this key level but just the fact that it closed above at all is eye opening to say the least. The market has been moving inversely to the dollar for quite a few months now but here we have a change of trend setting up and that has to be respected. Watching whether this holds over the 50's over the next few days will be tops on my list of things to literally stare at. If it keeps moving up further and putting distance away from those 50's, that would not bode well for equities at all.

So you can all see that there are so many things out there pointing to real trouble for the bulls. Key stocks breaking down by losing either their 50's or trend lines.
The daily oscillators breaking lower with bearish crosses on their stochastics and MACD's. However, not all is lost. Many of these stocks breaking down are getting close to be oversold if they're not about already there. A little more selling and they'll be more oversold and remember, there is nothing bad from a big picture outlook until the bears succeed in taking out those 50's on big volume and with force.

Those levels are now at 10,085 Dow, 2132 Nasdaq and 1078 S&P 500. The S&P 500 also has triple price support at 1085. The bears have a tough job ahead of themselves. No one can claim victory right here. Both sides have hope although the shift has moved a little closer to the side of the bears. Cash is best right here.

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