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Stock Market Quiet Inside Day

Stock-Markets / Stock Index Trading Jan 27, 2010 - 01:00 AM GMT

By: Jack_Steiman

Stock-Markets

Take a stock such as Apple (AAPL), which had a very nice day. Or did it! Great earnings for sure and rewarded for those earnings. It opened at 205.95 and closed at 205.94 after printing nearly 214.00 intraday. It actually printed a doji and a black candle and on a big move like that you don't want to see the sellers catch up so late in the day and print that black candle. The last hour did a lot of damage. We saw that type of reversal down on all the index charts and thus they too didn't print very pretty candles. Does this late action negate the better looking 60-minute charts that are out there? We are about to find out aren't we.


There are positive divergences forming on them across the board but there are times where the 60-minute charts don't mean a whole lot when the market is in a foul mood. That might be what's setting up here but you have to at least give notice to the fact that the 60's are close to oversold and are setting up those good divergences. Overall the action today because of the late action was not good, especially when you look at the late action of a stock such as AAPL.

Now we turn our attention to the daily charts. They are getting there in terms of oversold. Stochastics now all below 10 and RSI's in the mid 30's. 30 or less would be perfect. It is very difficult to get too bearish once the daily charts get this oversold. Can they stay oversold? Yes. If this is a market that is turning in to a bear market then yes, we will stay very oversold for longer periods of time. If this is just a correction then no, we won't stay oversold very long if at all. It looks like we'll be getting our answer as to where we are very shortly.

I have been in the correction camp only but you never know here. It could turn out to be more but it's way too early to say this market is doomed. It looks bad but that doesn't mean it is bad. Corrections can feel a lot worse than what is really taking place but you also have to respect the possibilities and now we'll get to see just what's taking hold here.

The market needed to get some fear put in to it and for sure we can see that is starting to happen in a big way here as the VIX (Volatility Index) is spiking up on all selling. Quite a big move off the lows for sure. It tells us that the recent selling is starting to convince many that bad things are on the way and again, they may be right but at least we can see for sure that fear is ramping up here. The sentiment numbers are out tomorrow and it'll be interesting to see just how far up they have advanced. I can guarantee you that things have cooled down quite a bit since the 37.5% spread from two weeks ago.

They could probably use more than those numbers are reading but we're likely getting that this week. It's impossible to know just how low things have to get on the sentiment front before it's enough selling. However, moves back down to the teens are quite common after moves up in to the upper 30's such as we just had. I can tell you assuredly that the numbers come down a lot faster than they rise as fear is the one emotion everyone struggles with. With two full bear markets under our belts in the past decade, running for the exit door comes quicker than it had in the decades past.

The PowerShares DB US Dollar Index Bullish (UUP) printed a black candle right in front of its breakout at 23.21 today. Not a great candle but the pattern is still favorable although by no means a guarantee to play out. If it does take out 23.21 the commodity world will implode in on itself. Be aware of that please if you're playing those stocks. While the black candle from today says a breakout shouldn't occur immediately, it doesn't mean it won't in the very near future thus keep a close eye on it please.

Stocks such as Goldman Sachs (GS), along with a plethora of other leaders, acted very poorly today and that's not the best sign although it does fit in with bringing up fear as these leaders are counted upon by the masses to perform well, even in the worst of times. When that doesn't take place the masses tend to run for the exits. The problem exists in almost every sector of the market and that too needs to be respected. From transports to retail to commodities to financials we are seeing the leaders not perform very well these past two weeks.

These stocks need to make a turn up sooner than later or we're going to start losing the 50-day exponential moving averages by a very large margin on the major index charts and that would be quite bearish. It's starting to get a bit hairy here thus it's do or die time for the bulls or the bears will be taking over for good. Feel the heat yet? That's the way it needs to be for now. Bring up the fear so the market can unwind the extreme levels of bullishness.

This is why we need to be cash or almost all cash for now. You can try a play here and there when it sets up but you must not do anything aggressive right now. Let's see if the bulls can take back control as we get very oversold on the daily charts or if that's just not in the cards and we're back in the bear. We'll get our answer shortly for sure.

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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