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Trading Lessons

Stock Market Another Day In The Downtrend....7-Year Uptrend Line Gone For Now..

Stock-Markets / Stock Markets 2016 Jan 16, 2016 - 04:09 AM GMT

By: Jack_Steiman

Stock-Markets

We had a confluence of events come together this morning. Last night we had the usual bad action out of China, which naturally put some pressure on the global markets. Europe follows China and we follow Europe, thus, step one took place. Step two was the price of oil, which is definitely affecting the markets. Oil got crushed overnight and this too had an adverse effect on our futures. Lastly, and in my opinion, most importantly, we had a cascade of bad earnings reports from two key sectors in the market. In the world of semi-conductors, we saw Analog Devices, Inc. (ADI) warn on future guidance. They are a key supplier to Apple Inc. (AAPL), and this also verifies the reports coming in that AAPL is seeing a slowdown. Intel Corportation (INTC) joined in with the bad news as well.


They warned on future guidance, which saw the stock get crushed today. In the world of the financial stocks we saw bad news come out leaders Wells Fargo & Company (WFC) and Citigroup Inc. (C). Both stocks following the guidance trail lower. Both stocks hit very hard with the rest of the sector taken down in sympathy. These stocks are part of a theme since the earnings season began. We've seen Tractor Supply Company (TSCO) as well as CSX Corp. (CSX) tell the same story. They're everywhere, and what's even more interesting is that many companies are coming out ahead of their earnings date to let everyone know things aren't very good. Even if the past quarter was fine it's what they're saying about the future that has everyone disturbed. It's harder and harder to justify Disneyland.

Those ridiculous P/E's are finally taking a little hit. Markets never really care about froth or insane valuations. However, at times, the market has to reluctantly pay attention. It never wants to, and that is the truth, but every once in a while for a few months the market takes those bloated valuations down some. It never lasts all that long and eventually those Disneyland valuations will come back, but for a while, the market is making them pay a bit, and for those who haven't exited, the pain is fairly intense. So while today wasn't anything to get too upset about, it was as bad as yesterday, in fact worse, and yesterday gave the bulls a lot of hope. A big up day was taken back with an even larger down day today. No celebrating for those frustrated bulls this three-day weekend.

The market is dealing with incredibly oversold oscillators rarely seen. The question is whether it's ready to stay that oversold or bounce. The problem in terms of bouncing is what the bears have been able to do technically. Yesterday the market rallied hard, and back tested the S&P 500 1925 weekly uptrend line that has been in effect for seven years. We closed a couple of points below, but this still gave the bulls hope since the market was so deeply compressed at oversold. It was not to be, and the problem was just doubled. 1925 is trend-line resistance now, but you can now add in massive gap resistance at 1921. The bears made a statement with this gap down. It puts a wall between current price and 1925. Nothing is impossible for this market, especially when you're talking about a bullish scenario. That said, the market bears did something they haven't been able to do for nearly seven full years.

Lose the weekly uptrend line, and put a large open gap between current price and that 1925 level. Good work by the bears. Can they make it stick with the market so oversold. You'd think not, but we shall see if this gap actually somehow prevents a move back above. The technical damage is real. A very interesting thing to do with regards to making this trend line more difficult to take back. Very interesting work by the bears. The bulls have their work cut out for them no doubt. A tough job just became quite a bit more complicated. They'll need to find a catalyst to get the job done, and what they may be in this environment, is a mystery to me. The bears have done their first good work in seven years. Now they need to keep the door shut on 1925 S&P 500.

Leadership is basically gone. No matter where you look, whether at individual stocks or individual sectors, there's just no leadership. Technology stocks were the leaders, but even the fang stocks are getting hit harder now. Nothing too sever, but they are struggling more and more as time moves on. AAPL had more bad news from ADI today. That stock has seen a tremendous move lower. No real end in sight for now. It will bounce like everything else, but sustainable upside is not on the docket for now. Semiconductors, transports and just about everything else is in a down trend. I don't need to tell you how bad the world of commodities is. There's really nowhere to turn where you can hide your dollars.

The global stock markets aren't doing any better. It's not as if you will have a better experience if you trade out of the United States. This is a global situation and that makes it harder to have a good experience with equities. The real message being to keep things very light. Don't chase strength when you see it. We are very due for a strong bounce, but the loss of S&P 500 1925 with a strong gap down puts that in question. very interesting times for sure.

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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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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