Stock Markets Pull Back Off The Top On The Best Possible News

Stock-Markets / Articles Dec 06, 2009 - 07:12 AM GMT

Best Financial Markets Analysis Article What an interesting day we saw today. An unusual day from many perspectives. We can start with the jobless report that came out 60 minutes before the opening bell. Expectations were calling for nearly 150,000 job losses. We saw only 11,000. You can imagine how much the market loved that report, especially when you add in that the employment rate fell from 10.2% to 10.0%, another nice surprise. Of course, that's a bad number overall but it was better than the market had expected it to be.

The futures exploded on the news with the Dow futures moving up well over one hundred points. We had a nice gap open as the futures held, but that's where today got even more interesting. I talked last night about how interesting it would be if the market gapped up on the news but started to churn instead of run. That's what happened. We broke to yet another nominal new high on the S&P 500, 2 points above the high from yesterday with a print of 1119. After the churn the market quit. Really quit in fact, as the Dow reversed nearly 2 full percent off the top. Nasty with Apple Inc. (AAPL) leading the way lower as it pulled back just a shade under 5% or 10 points in a matter of an hour or so. Incredible to say the least. Naturally, one would think that's it for the market, and who would blame them.

Funny thing happened on the way to market annihilation.

It didn't happen!

The bears were only able to bring things off the top but they were totally unable to follow through on the move, much as the bulls had lost their ability to break things out once we opened up for trading today. It really did seem as if today was the death knell for the bullish case, but with the failure that followed by the bears, the door remains open for the market and its longer-term consolidation to continue further still. Boring and annoying for sure but it looks like both sides had their chances in a big way today only to lose their grip to the other side.

An incredible day for the market.

Many will focus on today's action this way. Markets tend to bottom on the very worst of news as things deteriorate over time. A long process of bad news that just gets worse and worse and then it all caves in with the worst possible news coming out of left field. Everyone thinks now it has to fall apart and somehow it doesn't. The bears will say that today we have the exact same situation in reverse. The market has been trying to break out this range to the top side for some weeks without being able to do so successfully. Then this morning we get just the best news on the jobless situation. The futures fly but we fail to break out and get the huge reversal down. The bears will say markets top on the best news out of left field and they may be correct.

However, with the market fighting back as the day wore on once we reversed lower, it's hard to justify the bearish case here. I'm not saying we didn't see the top today. however, with the market fighting back from what could have been a devastating day, you have to be open minded to the possibilities that in time, the bulls could still get this market to break out. The bears really had the bulls on their knees as AAPL went straight down about 10 intra-day but, amazingly, could not follow through. Unreal and incredibly interesting. Bottom line is, the up trend remains in place although the bears are trying to make a stand at the 1121 50% Retracement area on the S&P 500 seen in our first chart below.

On a day when things went bad for the commodity stocks and gold in particular, the market found a way to do its magic all over again. Money left that area in a big way as the dollar exploded on the good economic news, but instead of a total fleeing of dollars out of the stock market, it found a home in the financial and especially the transport stocks the latter of which broke out to a new yearly high. Rotation continues. GLD or the ETF for gold may have put in a very long-term top as the gap down off the top occurred on just phenomenal volume (see our 3rd and 4th charts below). The type of volume that says the party is over for a while at the very least, if not longer than that. Be very careful with gold now folks. IS that gap down in SPDR Gold Share (GLD) today a harbinger of a better economy ahead? Could very well be the statement it made quietly. Yet even on a day when the market leader throughout this whole market rally, that being the commodity world, fell apart, the market maintained a positive bias. Imagine that. We lost AAPL and commodity sector in a big way today, yet no market losses. Easy on your bearishness folks.

Today's action tells us that things may not be easy from here. No one will argue that. It's unsettling to think that we may be stuck longer still in this ongoing lateral consolidation. We are seeing, however, some very good unwinding in our sector daily charts and that's a good piece of news for the bulls. Until we lose the 50-day exponential moving averages, folks, on the key index charts, that being the S&P 500, Dow and Nasdaq, you can't even think about talking bear market. The updated levels on the Dow, S&P 500 and Nasdaq being 10,062, 1076 and 2127 respectively. AAPL closed a few cents below its 50-day exponential moving average but nothing worth talking about. Yes, there are red flags everywhere but that's often what it takes to get enough unwinding in the daily charts to get the market moving higher again. Remain open. Do not become a bear just yet. Think about following the trend in place until we see a loss of those 50's.

Sentiment:

While there is no real reason for panic if you're a bull, if you’re focusing on the options market, there is some reason for real concern in the Investors Intelligence bull-bear ratio which is at nearly 33% more bulls than bears. A high number, although not yet at extremes, which comes in at roughly 35-40% or more bulls to bears. This is definitely starting to deteriorate for the bullish case but not yet where markets have to top. The options market is not showing this type of overly bullish action so we're still fine overall.

Sector Watch:

As noted above the breakout in the US Dollar out of its 7-month down trendline, as seen in our 3rd chart below, triggered a Gap down move in Gold on massive volume seen in our 4th chart. Most other Commodities took strong downside hits today as we noted pressure in the Silver, Copper, and Oil areas among others. The Transports, meanwhile, broke out to a new yearly high seen in our 5th chart below. The Semiconductors continued to breakout of a lateral base during the week showing relative strength. The Financials were more or less mixed although did show some strength late week. The Aerospace Group remains strong and we continue to see many of the Large Caps setup in basing patterns. Retail came under some pressure late in the week thanks to some weaker than expected same store sales numbers. Overall the market continues to show a rotational bias as we continue to trade more or less laterally the past many weeks.

Week Ahead:

The usual number of economic reports will be flying about day to day. The trend has been for better numbers and this may be why the bears failed to follow through on their selling attempt today off the top of our range. I will be watching to see if any other red flags seep into the system here against the bullish case and for the bearish one. For now, the bulls are still in charge thus my focus will be to see if there is any significant momentum to the bearish case. Watching the 1119 area on the S&P 500 for the bulls and the 1076 area for the bears. Everything else is just noise in between.

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.

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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