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Stock Market Gap Down That Holds

Stock-Markets / Stock Markets 2014 Jul 08, 2014 - 06:36 AM GMT

By: Jack_Steiman

Stock-Markets

That is a change of trend, but it's not confirmed yet. At least the bears can say they have an open gap now. This hasn't been the case of any magnitude in quite some time as this gap is decent in size. The bears need a second gap down in the next few days without allowing the bulls to fill this open gap. If that does indeed take place then the bears will get more aggressive. Two open gaps make a bear very happy as they know they will be defended on any attempt to get back through. Today is an important first step, but it is only step number one and to take it a bit further, the volume on the gap down was not strong enough to give the bears that all over fuzzy feeling.


It's not surprising that today's move lower was on weak volume as the bears have been burned repeatedly trying to front run a move lower, so it'll probably take that second gap and run lower to get more volume to pour in, as only then will the bears feel more in control, and, thus, willing to take more risks. So today was day one in an attempt to change the bullish trend in place. One day does not change a trend, but that second gap and run surely will if the bears can make it happen sometime this week. Again, without allowing the bulls to fill today's gap lower. The chance is there. Opportunity is knocking for the bears. They need to seize the moment. We'll only know what they can succeed within the next few days.

There is so much to study and understand when deciding what is happening bigger picture. You look at oscillators versus price first. What's occurring, and more importantly, what's not occurring. Are the oscillators moving down hard as price sells or is price pulling back while the oscillators mostly hold? You need to study volume. Volume is very over rated for the most part. Volume is only important at key moments in a markets evolution. When clearing critical resistance. When losing massive support, or when a market trend is truly changing. There was no volume to speak of today and clearly the oscillators were far from bearish in nature. For now it appears the selling is pullback in nature. Not corrective and clearly not bearish. This doesn't mean that things won't change as the week moves along but you take each day for what it offers up and go from there. Don't over think. See what's in front of you and adapt. For now, this looks like an overbought pullback and nothing more. But let time dictate if that changes for us. As always, one day at a time and adjust to what you see taking place. Don't front run.

The market is dealing with the usual problems. It's actually out of control, but the low rates environment is making it difficult to get this market lower, even though it desperately needs to do so to allow playing the long side easier and without so much risk. Risk is off the charts here. I don't care if the market goes up for months to come. Each and every day is full of massive risk, and all of you need to do, is at least make friends with that reality, so you can play more appropriately. It's actually a no-fun market environment. Nothing is safe nor easy for either side. A good correction would be incredibly helpful. We don't know when it'll come, but it can come out of the blue without notice nor provocation.

Keep alert. Don't let your guard down. Stay slightly long, but don't play from greed for now. Do what feels right to you, of course, but don't turn away from reality.

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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