Stock Market Finally Some Selling That Sticks........

By: Jack_Steiman

Not a whole lot. Nothing to get excited about by any means. In fact, it looked like the early morning selling would be wasted once again. We gapped down on a poor ADP Report (ADP National Employment Report), which is a prelude to the big Friday Job’s Report. It gives us all a sliver of insight as to what we can expect when the big number gets released on early Friday morning. The market was expecting a move higher in the jobs number but instead we got a loss of 20,000 jobs. The market surely didn't love the number but it didn't exactly fall apart.

Dow futures went from -10 to -39, which doesn't say much for the power behind the bears these days but lower is lower and we did gap down. We grinded slowly lower and then took another step down with the Dow down nearly 70 points. That was enough said the buyers and back up off the lows we went and pretty rapidly at that. The Nasdaq actually going slightly green a few times. However, in the last hour we saw the selling pick up again with the Dow down 70 once again before a little buying kicked in allowing for a 50-point loss with the Nasdaq down 12 and the S&P 500 down 3.

I know, nothing to get excited about but I'll take any selling that kicks down the oscillators. In this bull you can't get greedy with too much selling. You take what you can get and if it unwinds even a little bit of those overbought conditions you celebrate. Today we got a small dose of unwinding. Not much but better than nothing.

This is a game of emotion. Pure and simple. No one will argue that point. Even in the best markets you grapple with what to do. Can you trust the gains, etc. Should I sell or will it keep going up? Do I even believe in the market enough to get involved at all? Do I sell the moment some selling kicks in? On and on. The answer is simple really if you take a deep breath and look at things logically. If a bull market is in play the only time you really need to worry longer-term is when sentiment gets too bullish.

That normally comes when the bull/bear spread reaches 35% plus. It took the level of 37.5% to get our most recent pullback of 9%. So where are we now? At 29.3% more bulls than bears. Getting up there but not at the levels where you take off your long plays or stop going long at all. It requires close monitoring for sure and if and when we get there, you go cash.

Every percentage point above 30% means you should be playing less and less aggressively to the long side. It does not mean you start shorting. Not by any stretch of the imagination. That comes only when the proper reversal stick is printed. However, each percentage point over 30% means you should start thinking about cutting back on your exposure. Please keep that in mind as things evolve. This is why a good bout of selling would be perfect for this market before things get out of hand.

The market is closed on Friday, yet it will announce on CNBC, or any channel that covers the stock market, those job numbers the whole world is waiting to hear. Has the economy finally turned it around? Have we begun to see corporate America finally start to hire again because earnings are actually increasing through true profits and not just cost cutting? The job number is supposed to show a large increase in jobs created. Near 200,000 many think.

If the number comes in poorly we could see a real pullback ensue. Not just a hundred Dow points but possibly quite a bit more. If the number comes in good, will the market go down anyway because it's baked in to the pie? After all we have run up quite a bit already. It is unclear and there is real risk in to holding too much in to the report. All that said you have to give the benefit of the doubt to the trend in place and we know that a bull market is clearly what we're experiencing. You need to have at least some exposure for sure.

You must all individually decide what you want to hold. We've had a great run so maybe on your own, even if we don't take plays off, you can. We will hold exposure for sure. How much we're not sure yet. We'll decide that tomorrow as there's no market on Friday thus after the numbers come out Friday morning, we have to wait until Monday to respond to them.

S&P 500 1151 remains massive support on any selling to come. Some breach is always possible but for now we use that level as our guide, especially since just a few points higher lives strong support or the 20-day EMA.

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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