Sorry Folks...Consolidation Continues..Bears Hold The Top....

Jack Steiman from SwingTradeOnline.com at 12/16/09

I don't know how to say it any differently any more. I mean, you have to laugh. We hit the top. We get overbought. We sell off. We get to the bottom. We get oversold. We rise back up. Bulls defend 1085 S&P 500. Bears defend the 1110-1119 area on the S&P 500. An old story where the bulls and bears defend critical levels of resistance and support. Stocks are no different. A stock like Wynn Resorts (WYNN) up big yesterday but down a bit more than that today. Up and down. Down and up. Just have to hold unless the market loses those critical levels of support known as the 50-day exponential moving averages on the critical index daily charts. Those levels later on in this note. When a market has become overbought after a long run up such as we saw from March through September, this is the result. A long period of lateral consolidation that will play heavily on your emotions. Admit it folks, when we fall it feels really nasty doesn't it! Any pullback feels like the end of this market. Fear is a wicked emotion. Selling is a lot harder to deal with in a negative way then buying is in a positive way.

So today we saw those overbought 60-minute time frame charts get sold. Good unwinding took place. Not to oversold but solid unwinding did take place so now they're back to neutral. They can sell down further to get more deeply oversold and set up a better buying opportunity but in this market, it's almost impossible to guess where the markets will turn. If you study the 60-minute charts over the past many months, sometimes they turn from this level and sometimes they get to levels of extreme oversold before turning up. Again, the function of a lateral market with no clear direction over a prolonged period of time. There were no negative divergences on those 60-minute charts on the latest top thus it's hard to imagine things going down too much further before some buyers come in.

See today’s charts at SwingTradeOnline: INDU (Dow Daily), COMP (Nasdaq Daily), WLSH (Wilshire 5000), QQQQ (PowerShares QQQ), The PowerShares DB US Dollar Index Bullish (UUP), BKX (Bank Index).

If you want to make a bearish case, you need look no further than the financial stocks. They continue to under perform the overall market as the tarp payments hanging over their heads is creating uncertainty. These companies are diluting their shares by spinning off secondary offerings to pay back what they owe. Not what these companies would do in a perfect world.
The market can move higher without these stocks but it would mean that the S&P 500 would likely lag the rest of the overall market where we're already seeing a much better performance being put in by the small and mid caps. If the banks can get out some really positive news, the market would explode but there's no sign of that for now. If you study the Fas/Faz 3x ETF's on the financials, you can see they are also just moving around laterally. No breakdowns yet. Just lateral. Like the market itself.

The PowerShares DB US Dollar Index Bullish (UUP) continues its surge off the bottom, near 22.00. It rocked higher today yet the market hung there very well considering the percentage the UUP rose versus what the actual market fell. There is some change of character taking place on that level. The last few bug up days for the dollar has not killed the equities market. It would be perfect if the market and the dollar could move higher together but we'll watch for that over time. At least we are seeing a change of character the past few days. A good start.

So on to those critical levels of support for the major indexes. On the S&P 500, we have major horizontal support at 1085. The 50-day exponential moving average has raced up to close to that level, making it even more powerful support. That number being 1083. This is bullish. On the Nasdaq the number comes in at 2144. There's also strong gap support at 2162. The Dow has its 50's at 10,149. Lots of room before getting down there. Remember folks, any selling that doesn't take out those 50's is just noise.

I wish I could promise you that we will break out and move higher. I can't of course. I go by what I see. When a market moves up powerfully for seven straight months and then puts in along term later consolidation, the odds are such that the trend in place before the consolidation will take hold yet again. Never a guarantee. The 50-day exponential moving averages are racing up to meet price and this too is normally positive for equities down the road. I see nothing to make me think this will all come crumbling down but I am always open to that possibility. Staying long for now.

Nothing is easy in this type of market so patience will be necessary.