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Stock Market Struggling...Hanging In...

Stock-Markets / Stock Markets 2010 Dec 16, 2010 - 04:09 AM GMT

By: Jack_Steiman

Stock-Markets

What other words could you possibly use now is how I see it. It's struggling for a good reason. We have some difficult sentiment issues to deal with. A low 10-day put-call reading and a high bull-bear spread at 36% more bulls. When these forces come together it can take a bull market and force a pullback within it at any moment. No way to predict the moment, but you start to see more and more days of up at the beginning of the day, and then a real struggle at the end of it. Nothing horrific, but just more of a struggle each and every day for continuous upside action. This is not bad news for the market as it allows things to unwind more quickly, although a more sustained pullback can occur here due to those sentiment issues.


The daily charts are close to overbought, although not quite and the 60-minute charts were overbought, but are now getting closer to oversold. The daily charts could really use more selling, but it's hard to say exactly how it unfolds. It could be a slow gradual move lower due to favorable seasonality, or all of that can be thrown out the window with the market plummeting rather quickly to ratchet up fear more rapidly. With the overall market still on a bigger picture buy signal it's very hard to understand how the selling will unfold.

Bottom line is we're seeing a change of character with this market with the later selling after early upside action, and this often is a warning sign that deeper selling is around the corner, although it doesn't have to play out that way. It can still be more of a choppy type action that brings things lower over the coming weeks. Again, I remind you the bigger picture remains positive, thus, some selling can be construed as a positive as it helps new plays set up over time. For me, that's a real good thing. Instead of having trouble finding decent set ups it tells me that will become normal.

I have been asked why I think the selling to come from the sentiment problems, whenever it does kick in, will only be a pullback to be bought. What I try to do is use the oscillators from the previous upward trend and understand what is to come after the selling. If the market was indeed on its last leg, as the expression goes, then it seems unlikely to me that the oscillators would have been surging up as hard as they did.

It seems likely that they would have lagged badly, and flashed a big red flag, but overall they did not. Not to say they were perfect for they were not, but they were very strong overall. This suggests to me that once the selling starts it'll afford a better opportunity to buy down the road and the selling should actually be welcomed so more and more types of set-ups can take place in varying sectors of this market, rather than from just one or two, when things are more difficult such as they are now.

When markets are such as they are now all you can really do is play base set-ups, or strong pullback candidates, who have seen their daily oscillators unwind quite a ways lower. Buying frothy stocks up here that are on high poles have not worked lately. Some big time plays in that arena have been hit very hard the past few days to weeks.

Stocks such as F5 Networks, Inc. (FFIV), Netflix, Inc. (NFLX), Priceline.com Incorporated (PCLN) and Chipotle Mexican Grill, Inc. (CMG) to name just a few. High volume at the top is typical as the retail masses look to get in just as it tops out leaving these playing in deep holes, which makes for bad exits. Avoid these types and don't get sucked in on their rallies. Try to keep it more appropriate for the short-term. This may take quite a bit more time to play out, thus, extreme patience may be needed.

I'm keeping a close eye on those financials to see just what kind of guts they have, or don't. They really need to show out performance as things float about here. The Direxion Daily Financial Bull 3X Shares (FAS) needs to hold 24.00. If it can do that it would go a long way to helping the market recover back up once the market does what it needs to unwind overbought and too many bulls. The laggards that have come alive need to hold on to their breakout points. If they were to lose them again it wouldn't be the best behavior, and the bears would seize on those stocks to keep the market levels down. An important area to focus on from a learning perspective for sure.

You can learn a lot about a market's future intentions by watching one or two key sector charts. This is the sector to focus on. Always keeping an eye on the PowerShares DB US Dollar Index Bullish (UUP), or dollar chart as well. Keep it light here for now folks. 30% exposure is the most you should have here.

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 constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.


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