Stock Market Gap Down Filled But Action Still Weak Overall.....Poor A/D Line

Stock-Markets / Stock Markets 2010 Jun 02, 2010 - 02:10 AM GMT

One thing the bears need to do to gain solid control of this market is to get a back-test gap failure off the 200-day exponential moving average which occurred today at the open. The only problem for the bears is the gap, instead of running lower, filled fairly quickly thus there is now still no open gap below that back test which if it did exist, would make the job of the bulls more than difficult in getting that 200-day back. A gap down failure off a back test can often be death for the bulls if they can't fill it immediately.

All that said, the bulls really don't have much to be happy about here as we saw another poor closing last hour. Yes, they filled the gap but horrific action for the day overall in the down trend clearly in place. Not many looked to own stocks as the fear of poor economic news from Asia and Europe rule the day. We closed just off the lows for the day on very poor internals, which confirmed the overall negative action. Nothing good for the bears here. The bears could use that gap that holds below the 200's but even though they failed on that front today, they let the bulls know that getting back through the 200-day EMA's on the S&P 500 and Dow will not be an easy chore.

Midday we spotted something that bothered us about being long anything in this market, even with the daily MACD's being pretty compressed down. We noticed that the advance decline line, with the market up near their highs, we're all negative, nearly 2/1 in fact. That's not what markets usually hold rallies from. This made us go to cash just in time. The market gave it up shortly thereafter and when all was said and done on that front, the decliners led by nearly 3/1 over advancers. Never good to see the majority of stocks acting so poorly below those critical 200-day exponential moving averages. The internals speak and they say the bulls should be more on edge than usual.

Watching the action of the Oil Services Holders (OIH), or the proxy for oil, tells us that oil and most commodity areas are in bear markets. That is undeniable. They are all incredibly compressed at oversold. Levels of oversold rarely, if ever, have seen yet not even the hint of a rally. Absolutely destroyed. The problem in the gulf is allowing those stocks, and that whole area, to act as the financial's did in the 2008 bear market. Not a bid no matter how compressed things are at oversold. An eerie bear market going on there. It says don't be a hero and try to catch that sector at a bottom. There's no way to know where that bottom is. it could easily be very far from here. Please respect the message being sent there.

The bigger trading range in place is the double bottom low at S&P 500 1044/1044 made in February and April. The top very clear at that nasty 200-day exponential moving average at 1101. The same level also contains a gap thus getting through for now is nearly impossible. 1040/1101 and the question now is who wins out. Who can hold and who gives way. If the market were to lose 1040 on a closing basis it would be very bad news going forward. A move in to the 900's would be likely in very short order. A close 1% above 1101 or roughly 1111 or so would be near-term more bullish, and give hope that things will turn around for the bears soon. Anything in between is really noise and often unplayable.

Bottom line is today's action wasn't anything for the bulls to celebrate even though they filled a nasty gap down from below the 200-day exponential moving average. A good save but overall poor action on poor internals say its not a good idea to be thinking about putting on too many new long plays for your trading portfolio or your longer-term portfolio if you have one. I wouldn't recommend you deploying a long-term portfolio right now. It could work but I'd need to see a lot more from the bulls to suggest this would be a good thing to do in the moment. Things aren't great here for the bulls and it would take some unexpected good news from overseas it seems to reverse the trend firmly in place. Play slowly please. Cash is a very good thing right now.

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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