Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Selling To Unwind Continues....

Stock-Markets / Stock Markets 2012 Sep 27, 2012 - 03:23 AM GMT

By: Jack_Steiman


And that's really good news if you're bullish on the market. It's unhealthy to stay overbought for too long as you have to sell at some point to alleviate some complacency and constant 70, or higher, RSI readings. We have stayed near 70 RSI for a week, or so, and if you go back three weeks, most of that time was spent near the 70 RSI level on basically all of the important index daily charts. Not good bigger picture. You want things to sell so folks get bearish, and so we can get those RSI's down to the 50 area. That's just what's taking place now. The Nasdaq is actually a few points below that 50 RSI mark. How fast you can get there with a 2-4% pullback off the top. The Dow and S&P 500 are averaging near 50, and this is good as it washes out optimism. We can sure use that for a few weeks, if not longer.

We had another gap down today, and immediately, the put-call ratio spiked to slightly over 1.0. That's better than those .50's we were getting a week or so back. After falling hard, and getting oversold on those short-term 60-minute charts, we saw the market try to rebound as many RSI readings went below 20 on some leading issues, such as Apple Inc. (AAPL) and the SOX (Philadelphia Semiconductor) chart. Those are a bit extreme, thus, they closed off their lows and allowed the market to do the same. In the end, it was a good day as things unwound further without too much price erosion. A necessary event and the bulls should be happy about it.

I had recently spoke about some red flags that were appearing. One them was sentiment as the bull-bear spread got to 29.7% more bulls. I spoke about how 30% was a red flag. Not a run to sell all your stocks red flag as that happens as you get towards 35-40%. However, 30% is getting up there. Today we saw that number improve a bit for the bulls as it came down to 26.5%. Not the best reading in the world but as least it's a start to be sure.

A week such as this week can take that number down faster than you think as it doesn't take much selling at all to get people to sour on the stock market, especially since many have been badly burned in the past decade with those nasty bear markets they've dealt with. We could see readings at least a few percent lower by next week which would really take us decently away from sentiment starting to become a problem. Markets don't have to move much to the down side to get folks wanting out and feeling as if it'll never go up again. So this week's action, thus far, has probably gone a long way towards getting sentiment back in the neutral area.

I've talked about this subject recently and it must be watched closely in the future. I'm talking about the lack of power in the market on commodities since QE3 was announced by Mr. Bernanke. Instead of blasting these stocks up, they have fallen quite a ways, especially areas such as steel and oil. Is it simply because of those 70 RSI's, and the market needed to sell, or is it something different? That's what we need to learn as the days and weeks move along. If it's because the world is waking up to the reality that neither QE1 nor QE2 have done anything positive, then these stocks are in big trouble and it may be a sign that things are much worse than we all collectively recognize, for now.

The economy is still contracting after tremendous, unprecedented stimulus, thus, why get excited about adding more, may be the way folks are responding now. Makes sense to me, but what makes sense to me is meaningless. Only what makes sense to the market is what truly matters, thus, we're in a watch and learn phase of this market, with regards to its longer-term reaction to QE3. So far the Fed and the market can't be too happy about what it sees. Only time will tell the truth. It's interesting times for sure.

In closing, we watch to see how the market ultimately handles great support from 1440 down to the 50-day exponential moving average currently at 1414 on the S&P 500. The market, if it is truly strong, should hold no worse than the 50-day test. If that gets broken with force on big volume, the bulls are in trouble. I don't think that's what we'll see, but you have to be prepared for all possibilities in this crazy game. We watch very closely here for more insight. So far the market has done what it needs to do, and a little more selling wouldn't be a bad thing at all.

Hang in there patiently for now.



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.

Sign up for a Free 15-Day Trial to!

© 2012

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.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in