Stock Market Down For A Day....

By: Jack_Steiman

The market has needed a correction to begin for quite some time now. The market may have finally begun to sell some as today's action was fairly bearish overall. The market started out mostly flat, but started to sell as the day went along led by the commodity, bank and semiconductor stocks, the semiconductor and bank stocks losing their 50-day exponential moving averages today.

This had to happen at some point folks. No correction of any magnitude could take out those 50's simply because they were constantly turning up with price. It does not turn the market from bull to bear, but it does allow the bears to defend those lost 50's and keep the market lower for some time to come. Today wasn't the type of day that normally signifies the beginning of the correction but that's still a possibility. The bears need to get a strong gap down going in the next day or two to really keep the bulls suppressed for the short-term. They must not allow another gap up to remove today's decent technical damage. The onus remains on the bears to get things done.

The bulls have established their dominance for quite some time, able to thwart away any and all attempts by the bears to push them aside for a period of time. Again, to make that happen the bears will need that big gap down and may need a real catalyst to do it and that may come Friday from the Jobs Report. The bears already have a weak ADP jobs report from today, plus a terrible ISM Manufacturing Report from Monday under their belts. If we get a bad jobs report on Friday, and that's a big if, then they should have no problem seizing the short-term action to the down side. Today looks to be a good start for the bears, but the story is yet written that the correction is fully under way. Until we get that big gap down that runs lower all day, today was meaningless.

With all the problems or red flags out there for the bulls, today's sentiment numbers added some extra dirt. The bears are still below 20% at 19.4%, and now the bulls are back over 50% again, with the reading at 32%+. Not a get out of stocks number but not a good number if you're a bull. The complacency is still there and now worsening a bit while at the same time we have many index charts at overbought still on the weekly and monthly time frames. Not the best scenario for stocks to be able to go appreciably higher. We would prefer to see sentiment in the 20-25% range with bears well over 20% and bulls well under 50%. Sentiment itself is not on a sell signal but only on a red flag signal. However, add in the other headaches from overbought and key stocks losing key moving averages on price, and there's enough to warrant extreme caution to the long side for the short- to medium-term. The message is clear. NO bear market, but certainly there's reason enough to expect a difficult time for the bulls for short-term.

Lots of leaders from all over joined an already growing group of leading stocks to break their 50 day exponential moving averages today. No matter where you look from Amazon Inc. (AMZN) to Eaton Corporation (ETN), the 50's were getting taken out. The majority of leaders are now falling off their recent tops with gap downs in the pattern to make things easier for the bears. Gap down, plus the loss of those 50's on a wider scale, will make upside very tough consistently here for the bulls, and that is another in a long line of red flags short-term. When leaders finally snap and lose key supports, you have fewer and fewer stocks leading the brigade. You just can't have a lot of upside momentum when only a few stocks are still solid technically. The market needs this, and it would be best if it continued, thus, allowing many of these to get oversold and base out at lower levels which would then allow for another strong move higher somewhere down the road when things have sufficiently unwound. We probably won't go straight down as the bulls, the retail bulls, have been trained to buy weakness, but the upside will now be tougher for sure short-term with many up days mixed in just to confuse everyone.

The deeper message here being to make sure you don't over play the market here. Down-side action won't be simple either with whipsaw probably still the name of the game. It'll get too emotional if you play too many positions so if you do decide to play, keep it lighter. 3200 Nasdaq is strong gap support. If that goes we can see a strong move lower down to the lower 3100's. For now, we watch the market daily to see if and when the bears can put in that nasty gap down, which will truly turn the tide in their favor.

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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