Market holding Well...Testing our 2 Year Downtrend Line Resistance on the NDX/Nasdaq...Some Red Flags As Well...

By: Robert New & Jack Steiman | Fri, Aug 28, 2009
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Market Overview:

Every one of you want me to be either a raging bull or a raging bear. This gives you confidence to feel you can go out and play what you want to play more aggressively. You feel more assured that the plays you put out will resolve in your favor. The last thing you want from me is a sense of neutrality. A sense of not being clear, even when I am because it doesn't satisfy you in being a more aggressive player. I have been very clear now for a while telling you no one is going to gain much satisfaction based on a number of events out there which make you step back and wonder just what is going on out there. I will be very happy to go over all of that right here once again even though you're probably tired of hearing it. I'm tired of writing about it. Trust me on that. i know it doesn't excite you. It doesn't excite me either. It's really all about the truth though, isn't it! We moved back to a heavy cash stance this week due to whats seen in our 2nd and 3rd charts below of the Nasdaq and NDX Weeklies. Both are currently testing their major 2 Year Downtrendline Resistance areas and put in Weekly Doji's showing hesitation. If we clear convincingly we'll be putting out more long exposure but if we get a hard reversal bar next week we'll stay cash and consider a short position or two. For now a heavy cash stance seems best to see how these 2 important pivots get resolved.

After the close of trading yesterday, actually just a few moments before, we heard the earnings report from Dell. They came in quite favorably. Futures started to move up nicely after hours. Just what you would think should take place. This morning, the futures remained a bit higher, even after some economic reports on income and spending. A few minutes before the market was set to open, Intel came out and raised guidance. Huge bullish news for sure. The futures rocked higher. Not amazingly so but higher nonetheless. The market gapped up and ran as it should based on such news from two big beasts such as Dell and Intc are. Suddenly, the market reversed. Unusual. Instead of breaking out and continuing to run, it stopped dead in its tracks and reversed down. Nothing horrific. Nothing earth shattering. Just back down. Normally on such news, the Dow would have been up 200 points today and the Nas around 60. 2.5 to 3 percent gains with the biggest gains in the Nas. This didn't happen. A change of trend. A change in character. Is this necessarily death for this market? NO!!!!! Not one bit. It's not good news for the bulls. It's not great news for the bears. There are reasons why this market pulled back. Red flags I have been talking about but that doesn't mean things are going to just melt away. The number one reason for the market struggling now is the negative divergences on the daily charts. They are from very compressed top side levels as well. Not good news for the bulls. They are making gains harder to hold on to. That doesn't mean we can't fight higher. We can. That Sp 1060 gap is seemingly still a magnet. It also doesn't mean we will get there before having a more pronounced pullback first. The other big red flags are overbought daily charts and overbought weekly charts. All of which sounds like good reasons to go short. NO! You never short a market on a buy signal which we are clearly on. The market may simply need time to unwind some overbought oscillators before breaking out even above that 1060 gap in time. There are enough positive and negative forces on both sides of this market to create the neutral market we are currently in. Just the way it is now folks. Accept it for the reality of what it is. Don't fight it. If you are bullish, your hope is a more lateral market over some weeks that allow the divergences to be worked off and for those oscillators to unwind. If that happens, I will be aggressively long this market. The bottom line big news of the day is the market failed a breakout on some great news. A change of trend but not necessarily an overall change of trend for this bull market after a little more time. And like I said, we can even go to Sp 1060 short term.

The big red flag today was how once again the leading stocks, even those directly related to Dell and Intc, reversed back down off their highs in a big way on some pretty volume. Not what you normally see from the leaders suggesting they may need more time to unwind their oscillators which again likely means more lateral in this market. The good news is the secondary stocks on down the chain are holding things up overall, even as the leaders struggle some. If the secondary stocks were not doing well, then I'd have a much more bearish tilt on things but this is how markets often hold things up until the big boys are ready once again. Bottom line though, the leaders did put in some nasty reversals on a day they should have flown higher. This has to be respected for what it is. Once again it simply says to go easy here but not to just jump in and short things. That too likely won't be the best of ideas.

Sentiment Analysis:

It gets tricky here. There are different services saying totally different things. The AAII sentiment survey says too many bears believe it or not. The more reliable Investors Intelligence survey says 32% more bulls at a very high 51% of folks being bullish and only 19% of folks being bearish. In addition, we have seen some very low readings on the put call the past week. There were 16 consecutive readings of extreme complacency earlier this week. To be fair, we then saw some high readings once we began to sell. A fickle consumer? Emotion rules. Bottom line is that there is more complacency than before but not at levels that signal an end to possible upside. The VIX in additon continues in its Bearish Trend riding down the Declining 20/50 MA's for the past 8-9 months.

Sector Watch:

Mixed action within our key Sectors this week somewhat reflecting the flat tape in the broad market this week. Most key Commodity Groups hold potential to be forming Handles off bases such as what is seen in the Dow Jones Commodity Index which continues to show good action off 50 MA Tests (see 5th chart below). Steel, most Metals including Gold/Silver and Oil continue to show favorable action thus far off 50 MA Tests. The GDX also firmed up off a 50 MA Test this week. Some of the Techs put in potential topping candles this week after strong runs and may need a breather near term. The Transports (see 6th chart below) and the Financials continue to hold up in Lateral Basing Patterns and remain favorable as long as 50 MA Supports hold on tests. The Defense Group saw a nice burst higher this week on some favorable Boeing news on production of its Dreamliner. On balance, while some groups that have run far look to take breathers some of the 2nd/3rd Tier Sectors thus far are picking up the slack.

The Week Ahead:

This will be more than interesting for sure. We have this battle raging on. The good versus the bad. Buy signals in place versus negative divergences and overbought conditions at important Resistance levels which provided some headwinds at least temporarily this week. Leaders breaking but secondary stocks gaining. We know 1039 is now the high. We know that 1003 is the 20 day exponential moving average. That's resistance and support. We know that upside will be tough based on those divergences but we also know that huge gaps often act as a magnet and want to get touched. Can you say 1060. Getting aggressive anything here is a mistake. You have to pick your spots carefully and keep your stops tight. Overtrading a tightly spun market can be a traders worst nightmare. Good time to sit back and watch to see how our key levels resolve.



Robert New

Author: Robert New

Robert New

The Informed Trader is a site for self directed traders/investors. We offer Nightly Market Commentary, focused Long/Short Alerts, ETF/Sector Analysis, an Interactive Discussion Board with Intraday Stock/Market Analysis an IPO Corner and much more....

Copyright © 2009-2016 Robert New

Jack Steiman

Author: Jack Steiman

Jack Steiman

The Informed Trader is a site for self directed traders/investors. We offer Nightly Market Commentary, focused Long/Short Alerts, ETF/Sector Analysis, an Interactive Discussion Board with Intraday Stock/Market Analysis an IPO Corner and much more....

Copyright © 2009-2016 Jack Steiman

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