The bears had their chance yesterday morning with the S&P 500 gapping below 1375. It opened at 1371, only to see the bears give it up to an intraday rally that carried the index back to the low 1380's. The bears had to feel bad mostly because losing key support, such as S&P 500 1375, usually happens on a strong gap down and run. They accomplished the gap down but did not succeed on the run. The bulls found a way to hold the line. Then came last night and Cisco Systems, Inc. (CSCO) fooled the masses with a very nice report and some better than expected guidance. More on that later. The futures exploded higher. The bulls felt they had held the line in the sand and now it would be reversal up time. The futures were strong all night, but they began to weaken some as the morning wore on, although we still had a decent gap up open today. It didn't take long before the upside started to erode. The S&P 500 testing back towards 1375 again.
It churned there for a while, but you could feel the weight of the market as it just couldn't gain any further upside traction. Eventually it snapped, and down we went, closing convincingly below 1375 on the S&P 500. Now all of the key index daily charts are below their 200-day exponential moving averages with the Nasdaq and Dow well below. The S&P 500 tried to desperately hold the line, but it just didn't happen. This action puts the bears fully in control, even though we are now officially oversold on the daily charts, which doesn't happen very often but is a definite sign of market weakness. When it's oversold it can bounce up at any time but, for now, the bears are fully in control, make no mistake about that. It would take something special to change the new normal that has just hit the market.
Speaking of something special, that would probably relate to the fiscal cliff and getting some type of resolution or talk of closing in on one to get the market to reverse course. That was what the market was hoping to get today when the President spoke intraday on what may be happening with regard to compromise by both sides. The market wanted a "feel good" story to reverse the selling. Up until the President spoke the S&P 500 was just barely below that key S&P 500 1375 level. It was when he finished up that the market gave into deeper selling, with the reason being that he gave no indication of any progress being made towards a peaceful and appropriate resolution.
He said the fiscal cliff could come and go with nothing resolved but that he hoped smarter minds would prevail and get something done. He didn't sound overly optimistic, and when that became a fact, the market gave it up in terms of trying to hold above 1375. The bulls gave in as they were rightly disappointed. Outside of that type of potential feel good story, there isn't much out there that can come in and rescue the bulls here. The market broke today and did so convincingly. We'll have to learn more as the days progress, but you can't fight what you saw technically today folks. The bears took S&P 500 1375 away from the bulls. That's the bottom line.
CSCO is definitely worth spending a moment on here. Mr. Chambers, the CEO of CSCO, spoke last night after hours with CNBC host, Maria Bartoromo. He said things were going along alright and that he was hiring, but the hiring was coming outside of the United States. He said it was easier working with other countries, such as Canada, as they don't have the same poor tax laws and that they also made it easier regarding health care issues. A sad reality for what is ailing us all. The best companies in the United States are hiring outside of it. How can that bode well for our economy? How can that help with future growth in our business world? It's not only those in business. It's also those who won't do so because of these headaches. Many won't bother risking new ventures due to the rising cost created by health care and taxes. So yes, the stock did well on their report and was rewarded but, in the end, it was a failing grade for what he said about hiring practices for our own country.
The Dow closed below the three and a half year up-trend line on the weekly chart and didn't fight very hard in giving it up. The market is sending a message here to our Government leaders, and you have to wonder if they even care. The leaders of this country need to get together and prevent us from going over the fiscal cliff. If they do not do so the market will go much lower still. 1375 is now massive resistance on any move back up. That is what we should follow as the Dow and Nasdaq are so far away from that level now. If those three and a half year up-trend lines give way, we can fall extremely hard and fast. Stay cash. We're oversold, but we may simply stay that way for quite some time to come.
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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