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Stock Market Reversal Time From Overbought... Italy/Jobs...

Stock-Markets / Stock Markets 2011 Jul 12, 2011 - 02:22 AM GMT

By: Jack_Steiman

Stock-Markets

When a market needs to sell it will sell. You had the combination of overbought stochastics, overbought RSI's, and overbought MACD's on all the daily charts. In addition, you also had overbought 60-minute charts across the board repeatedly. Never good to stay that overbought for so long. The market needed to sell off those 99 stochastic readings on the daily index charts along with 70 RSI's. News needed to come along to expedite that process. First, we had the poor Jobs Report on Friday, which started the ball rolling down the hill. The selling was far from bad. Then we had Italy debt problems over the weekend, and that was the final ingredient necessary to get things rolling down the hill quite a bit faster.


Futures were down quite a bit ahead of the open as the rest of the world, especially Europe, was getting smoked lower. We gapped down roughly 100 Dow points and 30 Nasdaq points, and that was the best of the day for the bulls as the day was trend day from the get go. A steady push lower as the day progressed. You'd drop some, base out, and then head lower again. Never any real buying moments to get excited about. When markets have enough economic problems on their plates, breaking out over the previous highs isn't something you'd necessarily expect. We almost touched the previous highs of 1370 S&P 500 and 2887 Nasdaq. Fell a few points lower on each, but overall, put in a double top when we got overbought.

The bad news economically around the globe has since sent us lower, heading for full tests of the 20- and 50-day exponential moving averages. The back and forth market thus continues with large swings both ways and while both sides hold the line in the sand. Bulls defending 1249 S&P 500 and the bears defending 1370 S&P 500. The trading range continues for now. No end in sight until one side can claim enough good news over time to break the other side down.

Those darn nasty financial and semiconductor stocks were at it again today. Both getting hit hard with the financials getting hit the hardest. What a shock! (Apple Inc. (AAPL), Goldman Sachs (GS), and JPMorgan Chase & Co. (JPM) getting hit the hardest.) With Italy having potential debt woes, and with the August second deadline for the raising of the debt ceiling here getting precariously close, the market went on its usual kill the financials spree. They're the most prone to bad news, especially if that debt ceiling isn't raised by August second. If that date comes and goes without action, the stock market will likely mini crash at best and crash out totally at worst.

The stock markets around the world would be crushed. No getting around it.
It isn't about what's really the right thing to do, it's about the stock market, and the market desperately wants that ceiling raised up. If not, see you later bull market and hello bear. The stock markets around the world would all transition into a bear. No doubt about that at all. So the market is nervous, and rightly so, and when the market is nervous, the financial stocks get hit by far the hardest.

Today was clearly no exception. Semiconductors were a close second as they are a leading economic indicator of health. Bad news economically is never good for these stocks in particular. Bad news hit the hardest where it has been over the recent years, semiconductors and financials. It's an old story, but some things never change I guess. We know technically that the current patterns on the daily charts are in a fairly bullish posture.

A strong move up in both price and in the oscillators tells us the move was for real. It is confusing though from the perspective of the stock market not matching the real economic situation around the world, but it doesn't mean things won't get better on that front. The oscillators are telling us things will get better, but I sure don't see it to be honest. I always bow to the market for the bigger message, but it does make you wonder what's real and what isn't. Why would all the oscillators impulse up so strongly if this we're a truly weak market?

Normally the hint is there for us to see. The move up in price would not match the move in the oscillators. Those oscillators would lag badly. This has clearly not been the case, so on some level you have to stop using your brain and say trust what you see. However, I will never allow that to happen completely. The news is bad fundamentally, and that's always in the back of my mind. The charts are overall more favorable, but that won't allow me to say all is definitely well based on what's happening on Main Street. There seems to be a strange disconnect so my guard is clearly up more than usual. I won't dismiss the technical's, but I also won't dismiss the fundamentals. Interesting times indeed.

So, the market got to the bottom when things looked worse than terrible and the bulls saved the day. The market then found a way to get to the top, and when things looked ready for a breakout over 1370 S&P 500 and 2887 Nasdaq, the bears found enough bad news to squash any notion of moving through resistance. So for now there is a lot of news and things are swirling about in a hectic fashion, but in the end, no one is winning the war for now. The bulls have made a stand, but so have the bears, and thus, we trade in this nauseatingly violent pattern that shows no signs of declaring a winner any time soon. 2887/1370 are the key breakout levels. 1311 and 2752 key support levels.

The S&P 500 is closer to losing its support than the Nasdaq as the Nasdaq has been leading up with the S&P 500 slightly lagging. Bigger picture it's all about 1249 S&P 500 for the bears. If they take that level it's bear market time. Only the worst possible news I think could bring that about such as no debt ceiling being raised, or the like, such as country defaults. For now, we continue to monotonously swing about in a wide and loose range. It is what it is.

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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