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Stock Market S&P 1040 Breaches But Holds...For Now...

Stock-Markets / Stock Markets 2010 Jul 01, 2010 - 03:05 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleYesterday I spoke about the poor intra-day action as the stochastic's and other oscillators had unwound on the 60-minute charts back up but with no real price appreciation. You can't help but notice this type of behavior as we often see this on the same 60-minutes in reverse in bull markets. When a market shows almost no rise in price, but you get rid of oversold, it makes you think that things are shifting rapidly to the side of the bears. This had not happened in quite some time. All the 60-minute chart did was form a bear flag as things unwound in a very tight 15-point range. Today that flag broke down as so often happens in this set up. It did so with a huge gap down out of the gate as overseas markets were crushed on bad economic news from China.


The Conference Board Leading Economic Index® (LEI), or leading economic indicators, there fell sharply and yes, unexpectedly. This caused their market to get hit very hard and naturally took our futures down with it. We gapped down well over one hundred points at the open and spent the rest of the day slowly but gradually trading lower. We got down to -325 or so on the Dow before a large late rally allowed it to be down only 268 points. This late rally allowed the S&P 500 to get back over 1040 after trading down as low as 1035 late. A big save by the bulls, but not something they can really feel good about. Bottom line is today was nasty to say the least. Nothing good for the bulls except that small late save of S&P 500 1040. Just about everything perfect for the bears. One more accomplishment left for them. Other than that 1040 breakdown which didn't happen, they are definitely celebrating their work for the day.

I am not a big fan of volume except at big inflection points, and today saw the volume spike up in a big way, which tells me this selling was distributive, or to put it differently, from the big institutions. When big money is selling you have to take notice as they rarely do this type of heavy selling and to see it occur at such an important support level, 1040, really lets you know they mean business and are not afraid of blowing through this 1040 level. They seem to want it. With the volume spike we have to be on guard big time with regards to the future of this market. It doesn't look good for the bulls and a loss of 1040 would be devastating technically.

The other thing I like to look at when markets are trading up or down hard is how the internals look. You have to see whether the market, on a selling day such as today was, sold off with poor interns or good ones meaning the selling isn't as bad as it would seem. One look at the scoreboard tells us that there's no question that things were for real today in terms of the selling as the advance decline line was absolutely terrible meaning the majority of stocks were performing to the down side and that it wasn't just a few stocks leading the way down. The numbers were ugly. On the NYSE we saw 34 stocks down for every 4 that were up. On the Nasdaq we saw 24 stocks down for every 3 that were up. I need not add more to that equation. The numbers were scary bad for the bulls and just right for the bears. They couldn't have asked for more. With these numbers it tells us that 1040 doesn't have long to live unless the unforeseen takes place.

Here's the key to today's action. In the end the one thing that tells me things are bad was how the leaders of this market got absolutely slaughtered. Apple Inc. (AAPL) down more than 12 points is more than unusual. Baidu, Inc. (BIDU), and Amazon.com Inc. (AMZN), slaughtered. F5 Networks, Inc. (FFIV), SanDisk Corp. (SNDK), and Cree Inc. (CREE) slammed as well. I could go on and on but you get the point. The best of the best were taken out and shot and that's not something the bulls should take lightly. It speaks volumes about the intent of the big money out there. In their minds it was get me out of these bloated stocks that really have no right trading at the P/E valuations they currently do. No matter what sector or part of the market you looked at, the story was the same. Leaders were taken out and shot without any mercy. Sell first and look at things later. Bear market action.

If we lose 1040 you have a long-term measurement pattern down to 860. Doesn't have to happen but that is the measurement. If we lose 1040 there is support along the way of course. 990/1000 is first and 965 is next after that. The road would be long with lots of bounces in between. With the market closing at 1041 we are right there. We are also EXTREMELY oversold on the short-term charts meaning the 60-minute charts. A small bounce is certainly possible if not likely first, but things are very bad here for the bulls. Shorting would be fine on a bounce up first, or if we break down and then do the inevitable retest. 1067 is now resistance. Things look bad folks. Please adjust your trading accordingly.

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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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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