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S&P 500 Warnings Excuse For Some Selling.....

Stock-Markets / Stock Markets 2011 Dec 06, 2011 - 02:47 AM GMT

By: Jack_Steiman

Stock-Markets

The Dow and S&P 500 were up against their near-term down trend lines at 12,200 on the Dow and 1265 on the S&P 500. The market was churning there for hours, but not falling very much. Yes, the 60-minute short-term charts were a bit overbought, but the market was hanging tough. The bears needed an excuse to get the bulls to calm down a bit. It came in the form of the S&P 500 warning they would downgrade some Eurozone countries below the top rating of AAA. Later in the day they expanded it to a more specific seventeen countries under that watch away from AAA. The total result was a drop of roughly 150 points on the Dow from the highs to the lows.


It seemed the market was ready to head into red territory, but that was not meant to be as the bulls came in again, and brought the Dow back up to near 80 points. The selling did allow for the short-term 60-minute charts to unwind from overbought to neutral, although a drop more selling wouldn't be a bad thing at all. Nothing was bad for the bulls today, even though we closed off the highs. The bears can feel good that they didn't allow Dow 12,200 and S&P 500 1265 to get taken out with any force. That would have been a short-covering signal. So, for the day, they got away with having to take a lot off the table. The gap up did hold in the end with the Nasdaq out-performing the whole day. And that's more of a positive to the bullish case as it's always better for the bulls when pure froth leads the way.

The key to the market short-term is clearly defined in the charts. With the down trend line being at 1265, and the gap up top at roughly 1225, the lines in the sand have been drawn by a mere forty SPX points, or barely over there percent worth of action. It's never healthy for the top of a gap up that was created through a massive up day to get taken out by the bears a few days later. That would show that the move up was more of a head fake and not the real deal. We know the volume was heavy on that gap up top so it really should be defended with relative ease if things are indeed improving with this market.

We all know that the bears are more than desperate to defend the 1265 trend line. So the lines are drawn. The war is on. Whatever gets taken out first with some force should cause a directional move. In between, it's all noise and should be treated as such. Don't get too bearish on selling, and don't get too bullish on buying until one of these two levels go away with force. It won't take long to see which side wins. I favor the bullish case, but you can't be sure, so, please, don't overdo it.

It seems Italy, and all of the rest of the Eurozone, is getting down to business as Italy has announced measures to keep things afloat until things improve economically. They are forcing the retirement age higher along with other fairly intense sacrifices. The leader of that country actually broke down and cried when she explained what had to be done. The quality of life will go down, and labor for the masses will be extended out. This is, of course, just the beginning of the sacrifices that will be necessary for the people throughout the Eurozone.

Depending on where you reside, the effects will be from some small sacrifices (Germany) to some very intense sacrifices (Italy, Greece). Most everyone will be included in the massive sacrifice zone. Few will get away with minimal sacrifices. It's going to be a long haul for them, but it's the only way out of the mess the Governments, and its people, created through inappropriate behaviors. Sometimes you have to take bad medicine. It's just that this bad medicine will be very long lasting. That's just the realities of what's going to have to happen. Times are a changing, folks. The glory bad behavior days throughout the world has ended.
While things have improved for the markets, they are far from out of the woods.

The markets have a lot of work to do in order to become more bullish in nature. A longer-term trend line would have to be tested and broken through at S&P 500 1325. That won't be easy. It may never take place. It's hard to predict how the markets will respond to the actions the Eurozone will be putting in place over the coming weeks, months, and even years. Many programs will be implemented that we don't even know about, yet.

All we can do at this point is be aware of them when they happen, and watch how the markets respond day by day. We let the technicals guide along with an eye towards the fundamentals. Nothing will be easy for quite some years to come, so, please, be smart. Don't overdo things. Day by day we learn and move along.

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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