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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Both Sides Holding Where They Have To...

Stock-Markets / Stock Markets 2011 Apr 14, 2011 - 02:46 AM GMT

By: Jack_Steiman


The bulls were rocking. Nasdaq 2808 looked to be a slam dunk in terms of breaking through. Time after time the bulls tried and time after time the bears said not now. The gap is too tough for you. The bulls finally did go away. The bears were on deck and made their move. Down we went. It was pretty hard and pretty fast. One moment we're trying to get through 2808, and the next moment you're watching the bulls trying to defend the 50-day exponential moving average at 2738 Nasdaq. A fast seventy-point reversal for sure. Suddenly it looked as if this critical support level was going to get taken out with force. Not to be the case. Not yet anyway.

The bulls have come in after two attempts by the bears and successfully defended those 50-day exponential moving averages. This is handle-like action, but remember that the handle, usually reliable, is threatened by one massive headache known as sentiment. Sentiment can take this bullish set-up and knock it out quite rapidly. We're still at 39.6% more bulls, and that just isn't a good number. That reading was at the close of action on Friday, and so we may have drifted lower this week early on. But either way, it's still at elevated levels that will need to come down over time. For now, with today's failure by the bears to take things down, the market remains neutral short-term as both sides try to gather up the necessary energy to make a clean break. Watching 2738 short-term.

Good news is still being greeted in a positive way, and that tells you we're not in a bear market environment, even if we sell down in the days and weeks ahead to unwind frothy sentiment. Riverbed Technology, Inc. (RVBD) shot up today when they raised guidance in the morning. It blasted higher by roughly 12%. That's not a small move, and that's not something you see in a bear market environment. JPMorgan Chase & Co. (JPM) had slight headaches on their report this morning, and they were taken down but only slightly. In a bear market environment it would have been slaughtered. Some stocks will get taken apart on bad earnings reports to come, but many will also be rewarded for their efforts. That became clear today with the reaction to Riverbed. It's important to recognize how things are in terms of market reactions to news events, whether its earnings, or some other outside event. For now we're seeing behavior which strongly suggests the bull market is still quite alive. Again, that doesn't mean we can't correct another 10% from here. Sentiment can do that, but overall, we remain in a bull market environment.

Another sign of a bear market taking over from a bull market is distribution by the big money that rules this market. At tops you see strong volume on the down days and light volume on the up days. If you study the index charts from the Dow to S&P 500 and Nasdaq you'll see we're not seeing anything close to this type of behavior. It's far from perfect, but only when you see really strong volume on the down days versus light volume on the up days near tops can you say that things are now changing over to the bearish side of the trade for the medium to longer-term. That would be a real change of character not seen for a long time, and we are just not seeing that now. When good news is sold, and you see high volume at tops on the down days, that is a real red flag for the future. And folks, to be blunt, we're just not seeing that right now. It doesn't mean it won't happen, because we know in this game things can turn very fast. However, at this moment in time, whenever we hit bottom and rally to the top of a move, the volume trends at the top are anything but bearish.

We have gap down from two days at 2771 Nasdaq. That is now going to be real tough resistance, and only if we can clear that level with some gusto can we feel much better about the short-term direction. The bears will fight very hard to make sure the bulls don't recapture lost price support. That 2771 level is going to be tough, for sure, and it feels as if the market is going to need some news to get through that back to the up side. The gap is fairly large in nature, and the bigger the gap the harder it is to take out. We have 2738 on the bottom. That is huge support and where the 50-day exponential moving average lives. If the market loses 2738 it's quite possible we blast lower to at least 2700 if not 2650/2600. The market is not safe here. It's unclear what will take place. You have liquidity versus sentiment. Long-term liquidity wins but short-term sentiment can score a real blow.

Take it slow, and don't get overly involved with stocks here either way. Keep things very light, and wait for things to set up better over time. Patience is a real virtue here. Let things unfold as they need to. Don't front run the market thinking you know which way it'll break. It feels as if it'll break lower, but you never can tell. The bulls have been strong for a long time and deserve the benefit of the doubt. The onus is on the bears to change the trend, and thus, they must forcefully take out the 50-day exponential moving averages. Until they do, if you're a bear, you want to see it happen.



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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© 2011

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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