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Stock Market Bears Can't Break It Down....Not Yet Anyway...

Stock-Markets / Stock Index Trading Dec 01, 2009 - 08:54 AM GMT

By: Jack_Steiman

Stock-Markets

There just seems to be nothing around that's news worthy of breaking this market down below the 50-day exponential moving averages across the board. We get the Dubai News and the bears come out in droves telling us all that the end is here for the bullish story. The market falls bet yet finds a way to hang in there above support. We have an up open today followed by some good selling that takes the Nasdaq right back to its 50-day exponential moving average but once it gets within two points of this level it bounces very hard. The S&P 500 and Dow didn't come near to their 50's.


The story remains the same. We are in a trading range that's allowing, for now, the market to catch its breath after the massive move up off the bottom. There is still no evidence that says this market is done with its move higher, no matter what you may have heard to the contrary. There are absolutely no true sell signals in place although there are the usual red flags that make you wonder if all is safe or further upside down the road. I'll get in to that in a moment. For now we have a market that's struggling to break higher but try telling the bears they're in control, and see how they respond. They'll tell you they feel they should be based on recent news from around the world, but in reality there are, at best, in a standoff with the bulls. The bulls feel like they're losing and the bears feel like they're winning, but in reality, nothing could be further from the truth. Today was further proof of that. A market ripe to fall after the news from Dubai with all the big guns back in town and yet the market held up very well.

So red flags abound. And folks they really do.

IS Dubai the beginning of a headache globally? Is country after country going to report that things are falling apart for them financially?

That they are going to default on debt?

The first roach hit the pavement in a very rich area of the planet. Who's next we all wonder! In addition to the default headaches, we are seeing Japan start to break down technically. It has broken important support and is thus ripe for further down side if it doesn't get those losses back in a hurry. Right here at home we have major stocks, leading stocks, breaking down in just about every sector we can think of. Apple Inc. (AAPL) is in a slow decline. Stocks like Goldman Sachs Group Inc. (GS), although it had a strong day today, are on clear breakdown. Trading below its 50-day exponential moving average. Target Corp. (TGT) and J.C. Penney Company Inc. (JCP), which are in the retail sector are also on breakdown. Leaders everywhere, and that's not great news to be sure.

On top of that, we have a market that had a gap down from the Dubai News and that gap is going to be a headache when the bulls try to get back through to the up side. Willing sellers waiting to hit the sell button. Nasdaq 2170/2180 is that gap. A big gap. We also have a Nasdaq that's diverging from the S&P 500 and Dow in that it's relative strength, instead of leading as beta must do, is lagging badly.

Stochastics on the daily charts well behind on the last rally. You can see this is quite a group of red flags that tell us all to be EXTREMELY CAREFUL here. The onus is still on the bears to break this market down but we have to recognize the energy is there if the bears can get their act together.

On the plus side of things, all of these events allow for the market to climb that silly but true expression known as the wall of worry. Lots of negativity, which keeps things pessimistic enough to some degree. Bears flood the market with shorts and that is good energy for the bulls as the bears don't wait very long to cover their shorts if things don't work out quickly enough for them. The average position is covered pronto, in just a few days. The bears get frustrated by their lack of success and this is a major reason why the market is holding up. Also, it's normal enough for some leaders to break down for a while after they've had an enormous run up for many months. It unwinds some very overbought and stretched oscillators that clearly need a longer rest period. It's critical for the market, when this takes place, to find other places to park its money in order to keep the averages from losing their 50-day exponential moving averages. These leaders, now in some trouble, work off the oversold conditions and then can start working their way back up as long as the market held critical support while this process of unwinding took place. So far this has been the case. So yes, there are headaches out there but the market is finding enough aspirin to keep the headache from becoming a migraine. At least for now.

1071 S&P 500, 2118 Nasdaq, and 10,001 Dow are those magic numbers the bears want to see disappear. Those are the 50-day exponential moving averages that they can't take out for the moment. Know those numbers folks although they do change slightly each day. I'll, of course, keep you updated so no worries. We are in a trading range that basically covers 1085 to 1113 on the S&P 500.

Whichever one breaks first is the way to play this with move aggressiveness. The break must be clean and with the right internals, of course. Not just a break by one or two points that churns. Until then we continue in this back and forth mess to nowhere with the whipsaw killing the masses overall. Sideways markets are a trader’s worst enemy. Head fake after head fake kills them all. When you play this type of market slow and easy you can do fine. This isn't the time to think about making a lot of money. It's a time to scalp here and there and to preserve capital. Simple as that. Doesn't matter whether you like it or not. It is what it is. Adjust and you'll be fine. All things change soon enough.

Peace

Jack

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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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.

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