Quiet Inside Day

Jack Steiman from SwingTradeOnline.com at 01/26/10

Today's candlestick traded inside of Friday's large down stick and normally that equates to another day of struggling for this market. When a market has trended down for a few or more consecutive days and you get this type of inside stick, you can expect a little more selling in normal times. Apple's (AAPL) earnings tonight could try and turn that tide but normally the market will have a tougher time. Futures are up some after hours based on AAPL so it may be different this time but don't bet on that too much. Nothing will be easy for this market very short term. Those tough and too powerful sentiment readings just haven't been worked off enough to get aggressive with regards to buying stocks.

While things have assuredly unwound some on that front, we still haven't seen any real fear in the options market or in sentiment from traders on the floor.
We, in normal times, will need to bring fear up to much higher levels and get bullishness ramped downward. Only then can we get sustained upside action.
Sure, AAPL can bring a little upside possibly tomorrow but sustainable upside will be very rough for the bulls right now. I'm not suggesting a market free fall.
I'm just suggesting that now would not be the optimum time to be buying hand over fist. Will likely just meander further down over time with plenty of up days to make feel like you're missing something. Just the way the big players like it.

We all know by now that CitiGroup (C) is an important stock to follow with regards to this market and the healing process. Lately it has not been behaving well. It's closing in on its poor secondary pricing of 3.15. It printed 3.13 and then headed up but is now closing in on 3.13 once again. It would not be great to see this beast of a stock in terms of importance lose that level. It would be bad news for the financial sector which is what needs to hold more than any other sector because of the risk in that area of the market. If the financials fail, so will the market. The good news is that things are rapidly unwinding in this part of the market in terms of the oscillators. Let's just keep a close eye on C in the days ahead.

Earnings have been solid overall. Anyone who says anything to the contrary is only fooling themselves. The market is allowing some stocks to soar on earnings and not allowing others due to the run up they've had prior to their reports. Those stocks are full and simply need a pause in the action. Just because a stock sells on earnings does not mean it had bad earnings. When stocks get overbought and the news was in prior to the report, they will usually sell off some to allow their oscillators to unwind. Nothing bearish about that.
The fact that it falls on earnings allows for the masses to get more bearish and that's just the tonic this market is begging for. I warn about getting bearish on stocks that have blow out earnings but fall once those earnings have been reported. They usually set up as great buys within a few weeks time.

Now let's go over how things have unwound on those daily charts. We know that the S&P, Dow and Nasdaq were all printing stochastics near 100 at their peaks. In addition, they were all printing RSI’s at or just below 70. Not a good combination for longs. It can stay overbought and did for a while but the party finally ended when the sentiment spread reached 37.5% more bulls than bears. When we look at the numbers at the close of trading today we can see that the RSI's are now averaging 39. Sweet unwinding. Stochastics averaging around 10. Very nice. Getting close. I would love to see the RSI's get closer to if not breach 30. Point is we're getting close. Yes, we have lost for now those 20- and 50-day exponential moving averages and that's not great but if can hang close we can capture them back in a heartbeat. For now the charts don't look great technically as you'll see tonight in terms of the patterns and breakdown's but we have to also look at how much they've unwound and right now the news there is getting better quickly. So is this a bear market or is this a correction? I still believe this is a correction and NOT a bear market. I do think some very nice buying opportunities are close at hand. A little more patience is needed here. Yes, some charts look bad but they can repair themselves. I think it's just a matter of ramping up enough bearishness and then we can move higher again. Again I ask for your patience here.