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Stock Market Trading Back and Forth, Unwinding Nasty Divergences

Stock-Markets / Stock Index Trading Oct 01, 2009 - 02:04 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleThat's all we're doing while trying to unwind those daily charts along with those nasty negative divergences. We go up. We go down. We go back up and then back down all in the same day. Tremendous whipsaw in wide and loose triangles as the bulls and bears fight it out between 1045/1080.


In a given moment the bulls look like the winners and in the next breath the bears look like victors. Back and forth and in the end, no one is really emerging out on top. Maybe it'll take the big jobs report on Friday to finally get a winner in this high stakes game. Maybe it'll happen tomorrow but it looks as if some critical economic report may be the culprit as to what level goes first.

A real bad report Friday and I think we're in deep trouble. A real good one and we could blast up. It's unfortunate to be in a market and try to make money when it's so fragile. When one report can make such a huge difference and why we're playing so tepidly. I have very little confidence in anything here. Sure, we are getting some unwinding on those daily charts but that doesn't mean they can't go down much further thus allowing 1045 to break first.

To be precise, the number should now be 1047 as the 20-day exponential moving average is moving up slightly each day towards price. These are very dangerous times to be playing with any aggression.

The Dow moved up and down today almost 400 points. Things are getting violent my friends. Both sides are nervous. The range is only 3.5% wide. Not a whole lot of leeway. One event can change things dramatically. So anxious bulls and bears are in and out and in and out and doing it over and over again.

No one has confidence. One thing can be said with certainty. Which ever way this breaks, expect a very powerful move behind it. If we lose 1047, the S&P 500 could see the 50-day exponential fast, 3.5% lower. No fun. If we take out 1080, we could see 4% higher very rapidly. Bears will hate. Understand what's at play here and adjust your playing accordingly.

We started out with a move higher today when we saw some decent, although unspectacular, economic reports pre market. A good GDP with a fair ADP jobs report, which is the precursor to the big jobs report on Friday. It is supposed to give us a good idea about what to expect.

We moved up towards the bottom of that S&P 500 gap when we suddenly saw some wicked selling programs hit, taking the market down very hard and very fast. A nearly 200 point drop only to be followed by an amazing hammer back up of well over 100 points. With an hour to go, we saw more wicked selling followed by some buying back off those lows. An incredible day that saw nothing actually take place of any consequence because neither side made any real strides towards getting their number cleared. We ended up closer to the bearish resolution but that means very little in such a narrow trading range.

Dollar was weak yet again today and this is definitely on the side of the bulls. The RSI on the UUP chart got back to 50 where it seems to turn down. The UUP chart just can't clear that hurdle and thus when it closed near 50 yesterday it gapped down this morning, pushing the RSI on the daily chart back decently below 50, or in other words, keeping the UUP in a very bearish trend, which is why it's hard to get too bearish on the market overall.

Scary to watch how the dollar is just eroding away.

Every move up gets smashed back down with force. Every time it looks as if the dollar will have its day, it doesn't. If the UUP can close over 23.25 it will be back in an up trend and that would be very bearish for stocks. That's not happening at the moment unless some surprising news comes out of left field.

Bull markets, when defined, are said to be so when they hold the 20-day exponential moving average on pullbacks. We have now had two attempts on that level on the S&P 500 and Nasdaq, and one try on the Dow, the weakest index in the stock market. Tails off those 20's have been the name of the game thus you just can't get too bearish quite yet. These 20's are just the first decently important support levels. It gets far more critical below them, such as the 50-day exponential moving averages, but we can't get through the 20's right now so we need to focus on those 50's for now.

If we lose the 50's the game is over for the bulls. Again, not to think about for now. You could say that the 20's are being used to keep things from getting too bad in terms of price depreciation while allowing the oscillators to unwind. It's working for now. Again, 1125 can't be ruled out. If 1080 goes, we could melt up short term. At the same time, the daily charts look nasty thus you can't count out 1047 going away first.

I'm not trying to be cute here. This is extremely tough in these ranges. Cases can be made for both sides. So for now the bull remains in tact. Do not get aggressively long. I still wouldn't short until we can lose the 20's and fail on a back test to get through.

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.

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