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Stock Market Reverses At Support...Internals Poor.....

Stock-Markets / Stock Markets 2010 Jun 09, 2010 - 03:53 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleMuch to discuss with lots of different possibilities here, although I will tell you exactly what I think, of course. I won't take the low road and give you 30 maybes so I can't be wrong. I'll lay out the scenarios, but will give you a definitive answer as to what I think takes place when all is said and done.


The market gapped up a bit this morning from oversold 60-minutes I spoke about yesterday. Apple Inc. (AAPL), receiving seemingly its 100th upgrade in the last 100 days. It was exploding pre-market, up nearly 4$. Nothing unusual there. Other leaders that have not fallen, such as NETFlix, Inc. (NFLX), Chipotle Mexican Grill, Inc. (CMG), SanDisk Corp. (SNDK) and F5 Networks, Inc. (FFIV) were also gapping up pre-market quite strongly. The market was ready to blast off naturally with the Nasdaq leading the way in this oversold market. So, up we went but up we didn't stay.

The Nasdaq actually started to lead on the downside, something we haven't seen much of lately. The Nasdaq usually leads and we know it has to lead up for the markets to be healthy. Risk appetite needs to be prevalent. The Nasdaq started to lead lower, and do so in a big way. The Dow and S&P 500 went red but not by too much. The S&P 500 getting to 1042, but holding above that critical neckline area of support at 1040. When the S&P 500 hit 1042, the Nasdaq was down over 30 points.

Things looked dire but as I warned pre-market, the indexes were too oversold, and shortly thereafter the rally was on. A furious finish to the day as the Dow was up 123 points and the S&P 500 up 11. However, the Nasdaq lagged badly although it closed well off its lows. It finished down 3 points. Severe bifurcation to be sure. In the end a nice hammer suggesting some upside from here is realistic and possibly enough to actually create a right shoulder, but in the end not a great day for either side. The hammer was in but the bifurcation isn't good.

So what does the bifurcation suggest? Well, in my opinion, and this is where it gets hairy, it tells me the market isn't "clean" yet. By clean, I mean the following and this is really important because many folks want to declare a retest of 1040 today, and now the ultimate bottom is in. Possible, of course, but I don't think so.

A clean final reversal would have all of the indexes flying higher for the day after being down early on. The small caps and Nasdaq, the market leaders, were red and lagged badly. In a final bottom they would lead up. In addition, the internals would be super, showing more stocks up than down by at least two to one. While the NYSE had a positive advance/decline line today, the Nasdaq was red by 11/16. 11/16 decliners over advancers is not how markets bottom ultimately. Not in my humblest of opinions. Not by a long shot.

We reversed hard to stay off the bottom because the short-term charts all had RSI's below 30 and stochastic's below 10. The MACD's were compressed. Plain and simple. No magic. Very oversold and with the S&P 500 near 1040, the bulls were going to fight hard. The market was not set up to break down. I think oversold gave us the bounce that many want to declare was the ultimate bottom, and the internals say this is not how we bottom on the last day of a nasty down trend. Time will tell.

With today's reversal, and with many saying all is well now, I think it's worth our time to study the daily charts of many of our leading indexes. The S&P 500 and Dow along with the Nasdaq have MACD's that didn't quite make a new low with the new lows made in price. That is good.

Big problem here however, The Bank Index Chart (BKX), or the ETF for the banks, and the iShares Russell 2000 Index (IWM), or the ETF for the small caps, have both made new lows on their MACD's with the new lows in price. Again, bifurcation. Some good and some not so good. Positive divergences should be good across the board, not just in some spots. That's not appropriate final bottoming action. When I search the market I find too many technicals not aligning with a final bottom.

S&P 500 has the 50-week exponential moving average at 1085. The 200-daily exponential moving average at 1099 with the 20-day exponential moving average now crossing below the 200's at 1097. Gap is at 1100. Massive resistance between 1085/1100. On the downside we have the big one, or the neckline at 1040. We are in a trading range for now with 1040 the bottom and 1100 the top.
We're basically right in the middle of nowhere. Not a whole lot to do. Let's see which side takes control from here although for the moment the bears remain in full control overall. If the bulls cab clear forcefully above 1100 S&P 500, they are in business. If the bears forcefully remove 1040, they, too, are in business. It's a wait-and-see game for now.

So, today we saw a great reversal, which I believe was brought about by oversold short-term charts. It looks sexy. It looks like what the bulls would want to see if they are to have hope here. I understand that, and no one would like to say the down trend is over more than I would. It's easier to run a service in a bull market. Folks are happier. People feel better about things so yes, I would love to say today was it for the bears and now they're toast. I don't think that's the case yet.

Today was clean enough for me based on what I explained above. I think we can bounce a few days, and we'll come back down again. Just one man's opinion. Doesn't make me right. It could turn out that today was the final bottom and I am missing the boat here. I've been wrong before and will be again. However, I have to stick with what I see. I think the bears still have more left in their gas tank once this rally from oversold plays out. Time will tell.

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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