Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market Potential Trend Changer

Stock-Markets / Stock Index Trading Jul 04, 2009 - 08:16 PM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleThere has been one constant since the March lows. Once we blasted up off the bottom, the S&P 500 took but a few weeks to clear the 50-day exponential moving average. Once over, it had never relinquished that key moving average until Thursday. Basically above for four months. When you lose a substantial moving average after that length of time, you need to take notice of this event and what the message is that it could quite conceivably be sending.


It's definitely not a bullish one. What it could be telling us is that we're transitioning from a bullish trend in to a bearish one. We only closed four points below the 50-day exponential moving average on the SPX and this is not a deep enough close below this key level to say the party is over for sure. Add in the fact that the 60-minute time frame charts are extremely oversold and we could move right back over on Monday. That said, the action was bearish across the board today as everyone participated in the selling.

Also, just because we may go back over 901 on Monday, and that's a big if, it doesn't mean that'll hold. We may just relieve the overbought short term time frame charts and head right back down. If you look at the daily charts on all the major index charts you can clearly see that they are not even remotely close to being oversold and thus they should ultimately allow the bears to do their dirty deed if we are in fact making that bull to bear transition. There is further downside possible before the daily's become too compressed on the sell side. After seeing continued headwinds at our 200 EMA topside the market has finally given way to a test and 50 EMA breakdown move.  Bottom line is the loss of 901 on the Sp 500 opens the door to a key test of the final line in the sand for the bulls or the long term support at 875. If the bulls lose 875 the door is open to deeper selling as there's very little in terms of important support below that.  They'd have little to no fear. This would bode poorly for the market and there's no telling how bad things could get. The bears know they'd be in full control of things and they will thus become very aggressive.  Losing 875 SPX would be devastating news for the bulls so please keep that in mind.
 

During Wednesday's session we noted that most major Indices including the Nasdaq, DIA, SPY, etc., had printed Doji Candles which indicate that the sellers may have caught up to the buyers after a long move up off the March lows.  Yet you need confirmation of that Doji in the session to follow which is what we saw with our Thursday morning Gap down move.  This 2-stick pattern can often be a trend changer; thus, once we got our Gap move we flattened out our last couple of plays on the market open.  A Doji followed by a Gap is often a change of trend setup and this is commonly seen at the end of both up and downtrend moves in not only the market but also in individual issues.  In addition the Doji printed on Wednesday was a backtest move right up against our Trendline off the March lows on the Nasdaq which provided a strong resistance point (see our first chart below).   Both the DIA and SPY (see our 2nd/3rd charts below) gapped down after printing Doji's in right shoulders of potential Head/Shoulder Top Patterns which must be watched in the week ahead.

 
We gapped down Thursday morning on a much worse than anticipated jobs report. Expectations were for losses in the 350,000 area. We ended up having losses at 460,000. It's clear that employers are still laying off workers at a very intense pace. The market hated the news as seen by the selling that immediately took place in the futures market. Dow futures went from -35 to -115, while the SPX went from 4 to nearly 13 in the red. The gap down was for real as the sellers came in once the market opened. The bulls never had a chance. We gapped and ran and this is how you can recognize a gap is going to stick throughout the day. At times we can gap up or down but then things just churn.

That tells you the other side has caught up to which ever way the gap went often allowing for reversals. That was not to be today. We gapped and never looked back. As we approached that key 50-day exponential moving average at SPX 901, we spent over three hours just churning right on it. The bulls threw what they had at it in order to protect it but the bears held their ground allowing only for churn but no rally. This is normally bad news if you're bullish. If there are enough bulls to save the day the market will bounce hard as it approaches a key level of support. That just didn't happen. This allowed for a small breach and close below 901 at 896. The market has spoken but now the bears need to hold the market below 901 in order to gain deeper control and set their eyes on the big one at Sp 875. Once below 875, if they can get it done, they'll be able to breathe easier while the bulls suffer.
 
One of the critical events that took place on Thursday was the failure of the leaders to lead.  Apple (AAPL), Google (GOOG), Baidu (BIDU), Priceline (PCLN), Amazon (AMZN) and many other technology leaders simply had terrible trading days. One red flag that had shown up recently was how little the MACD's had moved up on the most recent advance in the key sector charts, but also in these key leaders within those leading sector charts. When MACD's refuse to impulse higher on the leaders, it tells you to play more cautiously. When looking at charts such as the major leader GOOG, you can see this lack of advancement and how the MACD is now pointing lower, not to mention the fact that it's testing its 50-day exponential moving average for the second time in a very short period of time and they did that on a gap down, meaning there's massive overhead resistance just above Thursday's close. This suggests further weakness to come in this issue. Many other leaders are in the same position. This isn't good news if you're bullish. If GOOG breaks that 50 day exponential moving average at 406, today's low, then much lower prices are likely for this issue and therefore the Nasdaq as well. Something to watch very closely. 415 is now strong resistance.

Keep in mind that although it does appear we are making a transition from bull to bear, you never play it that way until you get the breakdown and failed retest from underneath by the bulls. That's where you see the true confirmation take place. When things look bad, it's so easy to just get bearish and say with certainty that things are only going to get worse. That may very well be the case but you never know and if you want to play with total appropriateness, you wait to see the move  and failed retest from underneath.
 
Sentiment Analysis
 
There are an increasing number of bears and a decreasing number of bulls showing up as each week passes on all the major surveys we have come to respect. The changes are not dramatic nor are they at/near the levels seen at the March 2009 lows. We would need a lot more selling to increase the number of bears that usually tell us a market has reached a level of being overly pessimistic. The Vix, in fact, is quite low and that usually means a higher stock market. However, the market never seemed to take full advantage of this reality and now we can see the Vix chart is starting to diverge positive which suggests that things can turn around and head higher on this sentiment indicator which often means lower equity prices. We'll need a lot more fear to say we think the market could be putting in a significant bottom based purely on sentiment indicators.  If the VIX takes out its 10 month downtrendline that would be another ominous sign for the bulls.  In additon, market seasonality historically becomes poor as we move into the latter half of July.
 
Sector Watch
 


The Commodity area has been leading lower and there are some ominous signs in some of the sub sectors.  We posted an Oil Service Index Daily chart below which shows a potential Head/Shoulder Top Pattern which broke down Thursday through its neckline area.  During the week we noted successive failures on tests of the 50 EMA from underneath a bearish indication.  In addition, other groups such as the Hotel Sector (see our 5th chart below) show a similar Head/Shoulder Top Pattern in place.  If the consumer remains tapped out this group should be one of the first to stall out.  Retail looks similar.  Even some of the recent leading Tech Groups such as the Computer Hardware Sector (this includes AAPL...see our 6th chart below) hold potential as Ending Diagonal Patterns as the last few price highs have been putting in some Negative Divergence.  The Banks/Financials, Transports and Retail Sectors all broke through respective 50 EMA's during the week another shot across the bow near term.
 
The Week Ahead
 
The week ahead will be critical for both bulls and bears alike. It should tell us definitively if the transition will indeed take place from a bull market rally back to the bear market. It won't take long from here to understand what's ahead for all of us. If we stay below 901 for a day or so, it's quite likely the Sp will pay a visit to the 875 neckline of support that is the dividing line between bullish and bearish for equities. A weak bounce off 875 would tell us that it too will likely fail in time. A strong bounce puts that in to question thus we'll need to watch the nature of a bounce off 875. Will the Macd impulse or be flat? Will price jump or simply get dragged up with small candlesticks?

The answer to those questions will be our guide and we will take positions based on what takes place. The bulls need to grab back that loss of that critical 901 level. If not, the bears will get braver by the moment and a visit to 875 will become a given. In addition keep watch on the Gaps left behind from Fridays session.  We now expect strong resistance on bounces back to our 1824 Nasdaq Gap area which should provide an objective short entry point should we backtest that Gap area.  Slow and easy here folks. Very dangerous times here. We may be back in the bear market and like the last one from 2007/2008, we want to protect you from it and actually make you money shorting when appropriate.
 
Have a great holiday weekend.
 
Peace
Jack Steiman

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Sign up for a Free 30-Day Trial to SwingTradeOnline.com!

© 2009 SwingTradeOnline.com

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

Jack Steiman Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules