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Stock Market Collapse....200's Gone...

Stock-Markets / Stock Markets 2010 May 21, 2010 - 01:25 AM GMT

By: Jack_Steiman


Best Financial Markets Analysis ArticleFor now, all we can do is judge the market by the message it sends. The message it sent today was bearish. No other way to say it. No other way to spin it. A plethora of sectors and stocks were in nasty bear markets before today, but after today we can add the S&P 500 to that list with the reality that the Dow and Nasdaq are close. Both are now under their 200-day exponential moving average, but only by 1%, while the S&P 500 is below by 3%, which is far more confirming. The WLSH 5000 also fell below the 200-day exponential moving average today and this has, like it says, 5000 stocks, thus it's very broad based.

We started out with a strong gap down as Europe fell very hard based on strong debt and economic fears. After gapping down, we spent the rest of the day slowly, but gradually, trading lower, although there were moments of strong bursts up as the short-term charts got very oversold. The bounces, however, were faded down each and every time, which allowed our market to close on its lows. Horrific market action as the indexes tested and failed at those 200-day exponential moving averages. Not a thing you can say bullish about this market. No playing spin doctor with this game right here. Accept it for what it is and play accordingly. Bottom line is, the market spoke today, and hopefully, you were all listening.

Let's talk intervention. The Japanese tried it only to delay the inevitable. There is a ton of intervention going on, and more to come, which will give the market a bid for a few days at best. Germany intervened for Greece only to delay what will happen any way down the road. How do these countries, including our own, deal with meddling? They put the burden on us. They raise taxes. They put unnecessary, but damaging, tax burdens on large corporations, such as coal stocks of late and see what happened? Those stocks collapsed.

They put the burden on everyone but themselves as they pay themselves back by charging the bill to you and me. Sickening!! You are seeing riots in Greece and other countries around the world because of this meddling that clearly no one wants. The public is hip to the truth. Too big to fail, still exists, and we pay the tab. It's going to have to stop or something really bad is going to happen. Sadly, you'll hear more about intervention in the days ahead, and you just watch how they get their money for it. Get ready to empty your pockets even more to the Government a little further down the road.

If you study charts for stocks such as Goldman Sachs (GS), JP Morgan (JPM), Oil Services Holders (OIH), Freeport-McMoRan Copper & Gold Inc. (FCX), and dozens of others, you'll see ONE constant theme. Go to a daily 6-month chart of all of these and you'll see the process as they formed their bear markets. A break of the 200-day exponential moving average followed by a back test over time, and then a nasty gap back down off the back test that has followed through day after day.

The gap down off the back test is the key as the bears send their message this way. Creating a wall of resistance just below those key 200's. That is what has sent these stocks reeling day after day now well below those 200's. This is likely to happen in time, although you never know, with the S&P 500. It should back test and then fall right back down with a gap. It'll be interesting to watch how this comes together over time. For now there are so many leading stocks in bear markets its hard to keep track. Bad action and bad news for the market.

All 30 Dow stocks were down today. 497 out of 500 of S&P 500 stocks were down today. Are you serious? Yes, the market is serious. These are the type of internals that say, step out of the way of that train. Not a buyer to be found anywhere. When you see selling like this, it says you better pay attention. These types of internals tell us that things are deteriorating rapidly. Fear is taking over and we all know that fear rules over greed. Not even close. A blowout for fear. The problem for the bulls in terms of this sentiment is that we are nowhere near levels of bearishness that turn markets the way 37.3% more bulls made the top occur. Down to 19.1% now. It usually takes about par or even somewhat more bears to get things to reverse. Not good if you think we're too bearish here. Not even close. Sure, this week is knocking things down further, but we're not close to being overly pessimistic at this point.

1102 now becomes strong resistance on any rally. 1044 is the low off the February bottom. The market exploded for two straight months as we all know from that low, thus it is now massive support that needs to hold or we'll be seeing levels on the S&P 500 at 1000 or lower. It now becomes a market trading between 1044 and 1102, but I wouldn't expect anything good right now. If you're overly exposed on the long side I'd ask you to consider at least lowering that exposure. When a market trades below important support that changes the dynamics of things, it's best to, at least, consider taking some action. The longer we trade under the 200-day exponential moving average on the S&P 500, the harder it will be to take it back. Take it easy here. This market is not going to be forgiving to those who are too exposed on the long side. Tread lightly please. We'll guide you through the maze.



Jack Steiman is author of ( ). Former columnist for, 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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© 2010

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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