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Volatile Tape...Choppy Action...

Jack Steiman from SwingTradeOnline.com at 02/10/10


It's starting to get violent as both sides are fighting for control of this market. It's about the bulls holding on to the 200-day exponential moving averages while the bears are intent on holding any rally before the bulls can take back those 20- and 50-day exponential moving averages. There is a real fight going on here and for good reason. If the bears can take out the 200-day exponential moving averages on all the major index charts, they can declare victory as they will have removed all critical support with the 20's/50's and 200's all gone. This lends more towards a bear market in the making. The bulls, if they're able to capture back major gap resistance and then the 20/50 day exponential moving averages, will have taken back control from the bears and we will have suffered nothing more than a simple and normal correction in an ongoing bull market.

Lots at stake here as you can see and thus things are getting more violent as each side tries very hard to defend. This is normal. When markets are at critical stages in their journey you will often see volatility soar as both sides throw everything they have all day long. Neither side wants the other to gain the advantage thus the constant fluctuations from day to day, especially as you get closer and closer to one side losing their edge. As the title says tonight, violent and choppy is the way for now and you can expect it to ratchet up even further in the days ahead. very few days will have action that seems or acts calm. Too much is on the line so buckle up for the ride.

So which side is doing the better job these days?

The bears for now but that can change overnight. We have an established down trend in place with the loss of the 20's and 50's which was then followed by a retest of that breakdown. The back test was successful by the bears as they seized on the bulls and took it down hard from there. Classic corrective action at the very least. Having fallen nearly 10% from the recent top to last weeks intraday low, the bulls were looking for anything to stop the bleeding and they found it last night when there were rumors of a bail out for the country of Greece and their massive debt. Yes folks, talks of yet another too big to fail bail out.

This once again proves you can take all the unnecessary risk you want with no consequences should things go badly. I guess that'll never stop. Of course, you and I pay for that bail out but that's an old dreary story we don't need to go over again. Bottom line is there are no consequences, so it's likely this type of behavior will exist as far as the eye can see. No need to stop behaving badly if you can get away with it. The market loved this news of bad behavior being rewarded and blasted higher. Hey, who am I to say what's appropriate! For now, the bears remain in control.

The bulls saved the day but the Nasdaq closed below the gap up open. Only reason for that is that MS ruined the good vibe by saying intraday that the news on Greece may not actually play out as stated this morning. The Dow fell 100 points of its 225 point gain in minutes on that party pooper news. It tried to rally back up to the old highs but the fact that there were now no guarantees of a bail out kept the market from blasting up further. The S&P 500 and Dow closed slightly above their gap openings and again, the Nasdaq closed below. Not great. Not awful. A nothing day overall based on that close.

All of the indexes are unfortunately trading between their 20's/50's at the top and 200's at the bottom. It will still be volatile and choppy though so don't worry if you're looking for intense moves day after day. The move up today overall did get the 60-minute charts to get close to overbought but not quite. They were at their highs but the MS news on Greece removed the overbought although it's still closer to overbought than anything else. The daily charts are totally neutral now with the RSI's near 40 on average. A good and fortunate save by the bulls but they'll need to build on this news to get things more favorable. The bears have their work cut out too. They couldn't stop the bulls from overwhelming them on the Greece news and will need to take a stand on any additional gains towards the recent gap downs. 2178 is critical resistance on the Naz that the bears to stop cold.

Big caps are still not acting great. Goldman Sachs (GS) is acting poorly to say the least. In a massive down trend it can't seem to pull itself out of. Citigroup (C) is getting dangerously close to losing its secondary price offering which came in poorly at 3.15. Apple (AAPL) is struggling as is Amazon.com (AMZN), and in fact, many of the big leaders throughout the various sectors of the market are having a tough time sustaining major gains before heading lower. We will need to see this action reverse soon for the bulls to gain back more control. In particular, the financials need to gain a strong bid for the health of this market to return to its normal ways of moving higher. As go the leaders will be as the market goes. In this current confirmed down trend, the leaders are leading lower, not higher for now. That can turn around in a moment.

Why is shorting more difficult than going long is a question I am asked often, even in down trending markets!

The answer is simple. Down side action is much tougher to trust than up side. Here's the reasons. When markets get oversold they rarely stay that way. Once RSI’s hit the 30's on the daily charts, down side gets tougher and tougher. Not so on the up side of the ledger. They can hit the 60's and often climb over 70 before there's even a hint of selling. Markets by their very nature stay overbought far longer than they stay oversold. You have to nail the top of a move to get any real satisfaction on the way down. Markets whipsaw more on the way down than they do on the way up. Has always been that way. You hear people say that the last ten years have been flat. That we've gone nowhere. Nothing could be further from the truth.

Yes, in terms of pure price, we are flat. However, in the last ten years we have been witness to the two most intense bear market you'll ever hope to encounter. The bear of 2000-2002 and the bear from October 2007-March 2009. Basically,three and a half years of market you know what. Yet the market is flat over the past ten years and the reason is because over those ten years, the market was up most of the time. The key was identifying the two bear markets. We weren't in business in 2000, but we were in 2007, and those of you with us know we were fortunate enough to call the top in 2007 and made money over that bear market period.

Bottom line, market almost always go up except when taken over by a vicious short-term bear. You can't be as anxious to short as you can be to go long mostly by the nature of the game. Yes, shorting can be great at times. It was for us in 2007-2008 at times, but overall, unless you're sure we're in a bear market, you have to be very nimble to say the least. I don't think we're in a bear at this time although that's still not clear. I think this has been a correction and I said I thought that's what we'd get when the down trend began. I painted the picture on both sides but felt this would be a correction and still do. Shorting is, therefore, much more difficult. If we lose all the 200-day exponential moving averages on the major index charts, then we can talk about a bear market and not a minute before.

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