Stock Market Late Selling..... Not Anything Terrible

Stock-Markets / Stock Markets 2013 Nov 19, 2013 - 10:26 AM GMT

It wasn't anything terrible, but it did come from some nasty looking MACD's on those daily-index charts. When studying them we see that they are making lower highs on the MACD's while printing higher highs in price. The small-cap stocks and Nasdaq look particularly poor, although with this market who knows if they'll ever play out, but you can't like what you see when looking at those charts. Add in the poor readings on sentiment and the combination, one would think, would bring about a fairly reasonable pullback, but who knows for sure. The market has been so strong it's hard to bet against it but you need to be safe when things show themselves and with today's reversals it seemed appropriate to raise some cash.

Certainly this is NOT the time to be overly aggressive to the long side, even though it seems the market can't fall. It's when it feels that way that it often happens but again, who knows. Just recognizing higher-risk moments are very important to your trading for the short-term. Because we're in a bull market you don't want to get overly aggressive to the short side either. We know how that's worked out for those who have been trying that trade. The market is likely saying it could use a little rest. Maybe it won't, but I have to say today's late action suggests to take it slow and easy time with longs and shorts. Lots of cash would not be a bad thing at all.

On Wednesday's, and sometimes late on Tuesday's, I can get those bull-bear market-spread results. We had a solid up-week last week after three weeks of basing. Before the week began we had a reading of 37.1% bulls to bears, bears at a very scary reading of 15%. That's historically extremely low. Did it move down to 13 or 14%? That would be unprecedented. Are the bulls rocking up towards 60%? Is the spread at or over 40%? All of these are critical for this market and, thus, I can't wait to get those numbers. At 40% on the spread it is a sell signal, but we have seen readings get in to the low 40's in the past, but rarely, if ever, seen bears at only 15% and now possibly even lower than that.

The rubber band is stretched folks. The market could use some selling just to unwind those longer-term weekly and monthly charts, let alone the daily charts, which would work off those poor divergences in place. Getting new plays with potential bad divergences and bad sentiment numbers isn't smart so for all our sakes, maybe we can get silly numbers on the spread that'll take the market down some and allow things to unwind, which would be very healthy. We'll know late tomorrow or on Wednesday. Stay tuned.

The breakout at 1775 is now strong support followed all the way down over time to 1730. Truth be told, as long as 1730 holds we're in good shape. If we ever lost 1730 then we'd likely be headed for a very serious correction. That is always possible even though it feels impossible. When markets go higher, and rarely correct, it feels as if it never will, but we all know how fast things can turn. In the past, when things got very stretched, I can promise you, it felt that way. No way we can fall, and then it gets hammered out of nowhere and doesn't come back.

I'm not saying that's what's on deck here, but just watch support levels and see where this all goes. The bigger correction may not come for many months. Who knows, but the risk is out there thus we watch key support levels. 1775 is first up on the S&P 500. Let's see if the bears can even get that to happen.

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.

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