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Catching a Falling Financial Knife

Stock Market Standing Still....

Stock-Markets / Stock Markets 2013 Feb 12, 2013 - 11:04 AM GMT

By: Sy_Harding

Stock-Markets

We're all waiting to some degree for this market to take the big spill lower. It will happen soon. It's only a matter of time before sentiment and the repeated overbought conditions catch up to the market. The problem for everyone, bulls and bears alike, is the reality of not being able to time this eventual plunge to unwind the sentiment issues currently at hand. We're not at extremes yet, so timing it is virtually impossible. If you've tried to do so from a bearish perspective you have had some rough times lately.


The bears have been fooled over and over again as they jumped in a first signs of overbought, especially when it got to extremes on many of those key index charts. And it did get to extremes when you think of how many daily RSI's got to over 80 on indexes such as the small and mid-caps. After some price unwinding, little price unwinding at that, which allowed the overbought conditions to go more neutral, here we are again trying for overbought, but this time also creating what will be negative divergences. At some point soon, as I mentioned above, the market is going to take a powerful hit.

However, knowing that's true, you have to stick with the trend in place until you get the proper reversal stick. If you want, you can sit on cash and wait for it, or you can keep some exposure, but be smart to avoid the super higher beta plays so as to not get hit too hard when the market sells a bit. There are many ways to go about adjusting to the times we're in, but the best way is to keep it light and to avoid the froth and high beta names for now. Whatever works for you is what you should do, but I'd be careful shorting too soon, especially if you want to get aggressive doing so. One up day can make the pain of too much shorting unbearable. Be wise. Go slow and adapt.

Markets find a way to hang in there when they're not ready to give up the trend in place. For instance, it's not able to break out in a given moment but will find an area to be bought in order to keep things moving higher or laterally. On the other hand, it'll also find places to sell so things don't get out of hand on the up side. We see buying in one area and selling in another. Today the buying was more in the world of financial stocks, while the selling took place in the retail space. There's always exceptions to both areas of the market, but most retail stocks struggles today while most financial stocks did just fine.

This is how the market cycle is about to keep the trend in place moving forward. With today's flat open, it didn't really provide the market technically with the type of candle sticks that say the uptrend is clearly over for the short-term at least. It may be, but there was no classic topping sticks. More of the buy one area and sell the other. No across the board selling with topping sticks we normally but not always see. The cycling hung in for yet another day so we have more watching to do so as to try and find a true topping stick that says we'll finally get the deeper selling the market pretty much desperately needs.

None of the classic events are taking place that signify the end of a bull market. Yes, a nasty sell off period is coming, but nothing thus far that suggests the bull market itself is in big trouble. Good news is still treated as good news. There is no massive selling volume at the tops of patterns once they sell off some. No massive negative divergences are in place.
In addition, the Fed is protecting with liquidity. Too many good things, especially the last thing mentioned with the Fed, to get bearish on the bigger picture at this time, so when this market finally snaps from overbought and sentiment, use that weakness over time to accumulate good plays. Find the best bases and patterns and play on weakness. Then use patience to reap the benefits of those set-ups on weakness. S&P 500 1494 is support all the way down to 1470. Moving averages, etc. We'll look for bottoming sticks when the selling kicks in.

For now, resistance up near 1525 is on deck for the bulls. Watch with patience and appropriateness. Keep it safe.

Peace,

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

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Catching a Falling Financial Knife