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Stock Market Selling That Actually Sticks.....

Stock-Markets / Stock Markets 2010 Mar 25, 2010 - 03:36 AM GMT

By: Jack_Steiman

Stock-Markets

That's a nice change of pace for once. This market needed some selling and finally got it. There were many times during the day when it seemed the market would try and go green, but for once it didn't happen, and I for one am glad it didn't. There comes a point, even if you're bullish, where you want some selling to unwind those overbought oscillators. In the back of your mind you know that the longer we go without unwinding some, the harder things will come down when it snaps. With today's selling the daily charts are now only borderline overbought while the 60-minute time frame charts are now a little more than halfway unwound from the top. It doesn't take too much selling for them to unwind some.


I can only hope we get additional selling before the market try's to move higher once again. The deeper we fall initially to unwind things, the better the opportunity for decently higher prices. Another day or so of selling would unwind things enough to be set up to move higher once again. If we move up from here then the move higher will likely be very limited thus even if you're a bull it’s best to get lower first and know that if you're in good stocks they'll hold up well anyway.

Let's talk about the market and stocks. I can tell you the easy money has been made. That doesn't mean we aren't going higher as I believe we are going to move up again, but the move up is getting mature. The MACD's are now compressed top side instead of coming off the bottom. The RSI's are stretched as are the stochastics. The best of this rally has passed so now it becomes a very stock specific environment.

You need to buy the best set ups and make sure you don't buy them at overbought. You could get away with that a bit easier many weeks back but now it's tougher. You need to buy strong handles with a clearly defined range that can ultimately make another strong move up. Yes, you have to deal with a handles whipsaw but that's the best way to buy stocks now. That or stocks testing back to their 50-day exponential moving averages and if possible, gap support just under that. There aren't that many stocks testing back to their 50's right now because most stocks are extended but those plays do exist for sure. The handle set ups are everywhere. These handles tell me this bull run isn't quite over yet. I do want to make it clear that things are tougher now, and with that being the case, you can't just haphazardly buy just about anything and expect immediate gratification.

The sentiment numbers are not at extremes yet but they are creeping up slowly but surely. A nice jump up in bullishness this week. We saw the bull-bear spread move up to 28.4% more bulls this week and although it's not at extremes, you can see the retail buyer is jumping in now due to the fact that they've missed this bull market. Just two weeks ago we were near 20% and now we're closing in on 30%. We all know that once you get to 35% or more, you can forget the bull market. At the very least a strong pullback is coming. We're getting closer but still not in dangerous territory. This needs to be monitored very closely and you know I will do that.

The PowerShares DB US Dollar Index Bullish (UUP), the proxy for the dollar, has move up to 24.05 with a measurement of 24.25/24.50. It's been a long run up for the dollar but the connection of the dollar and market has waned lately. Commodities are affected still but mostly only in the areas of SPDR Gold Shares (GLD) and iShares Silver Trust (SLV). The overall market is ignoring the dollars rise and that's been a nice change of character for the bulls and a big disappointment for the bears. The move in the dollar is nearing completion but can run a bit more. It will be interesting to see if it can start to adversely affect the market. I don't think it will any longer. I think any major selling comes from overbought and too much bullishness.

Markets run through phases. Most phases are higher, but when they go lower, they go lower a lot faster than they rise thus timing the tops of a run is very important to successful overall trading. I don't get the feeling that we've seen the top yet. A run to 1200 S&P 500, or thereabouts, is possible but I don't think we're close to thinking long-term here. I don't think we'll come close to the old highs at S&P 500 1576 although I am open to all possibilities. If the market signal says that's where we're going I will go along for the ride. My instincts say that won't happen, but I won't let that instinct interfere with what I see set up. We always take it one day at a time and thus each day brings new insights. We'll learn as we go.

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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