When markets want to do something, there's really no one to stop it from doing so. Suddenly you'll see news that used to be a positive not be a positive any more for the short-term. Long-term is a very different story, but short-term the news stops becoming relevant. Most traders don't understand it. They see a strong report and naturally follow the path of least resistance, and thus, buy stocks. The market initially goes higher which makes sense, but then suddenly falls. Frustrates them. They're not used to it at all. A real change of character. Traders don't do well emotionally with changes in recent character. It makes them less trusting. And that's the whole point.

When the market wants to do something such as unwind long-term overbought conditions along with some higher bull-bear spread readings, it's going to find a way to sour the bullish atmosphere we've been used to. Face it folks, the market has been going higher even in the face of bad news so what's up with good news being sold they ask. That's how the market does its dirty deed. Fool the masses. Get people thinking more and more that maybe things can't be good any longer. The bull-bear spread drops quite a bit in just a short period of time, and those very elevated oscillators start making the journey south to levels where the bulls can have some real success again.

Today we had a fantastic economic report with the Chicago PMI (purchasing managers) report. Well above expectations. It showed a real pickup in activity. A real good sign. The market sold it as the day wore on. Good news is in. Not long-term but for the short-term so today and for the past few weeks we've seen the market go nowhere at all in terms of price but it has had success in beginning the process of unwinding. Deeper unwinding would be better, and hopefully, we get it but with the market selling great economic news today you can see the market is determined to do the deed of unwinding over time. Not down every day but far more difficult to have sustained upside. The market has sent a message.

So how long can this all last is the big question. Several weeks to be sure is quite possible. We started the journey off the top when the bull-bear spread got to 36.4%. This is just above the first red-flag signal, which occurs once you reach 35%. In addition, we spent many weeks with the bears being more the problem. Just not enough of them. Below 20% for several weeks. The bulls didn't blast up as much as the bears simply fell away. This is why we never reached the get out of the market sell signal which occurs when the bull-bear spread gets to 40%. Normally bulls get over or near 60% and the bears sit near or just below 20%.

With the action we've been seeing, the bears are now almost back to 20% from the high teens and it is quite possible that next Wednesday we'll see readings closer to 30% on the spread and the bears back over 20% which would be a good start. The MACD's, stochastic's, and RSI's are now starting to really move down as well which is exactly what they need to see happen. It really doesn't take long and it's not likely that they'll be getting oversold. Overall, this can last many weeks but it doesn't mean it's down every day. Just an overall malaise that wears out the bullish nature of things which is very healthy bigger picture. Be patient as it all unfolds.

If you play too many positions in this type of agnostic environment that's working on unwinding you will feel the pain. There are times, which I have discussed many times through the years, when it's best to keep things lighter than you have been in the prior months. That time is upon us I believe so it would be best to keep long exposure but not at the rate as you have been. Great set ups present themselves and can be played, even if the journey to profits take longer than they had been over the past few months. There are no sell signals in this market. There are no massive negative divergences. There are no too bullish sell signals. There is no massive distribution volume.

There is, however, the need to relax and be more patient as the market works to let the excess wind out of its sails. If you choose to short that's up to you but I feel you try to stick mostly if not entirely with the bigger picture trend in place which we know is clearly bullish. As long as the market holds key long-term support on those important daily index charts the selling is a good thing for the longer term. Those numbers are 1575/1600 on the S&P 500, 14,896 on the Dow and 3358 on the Nasdaq, which is only 3% away. Just recognize where we are at for the short-term and keep things appropriate.

Have a great weekend.

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.

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.

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

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.