Stock Market False Breakout and Reversal....

Stock-Markets / Stock Markets 2014 May 15, 2014 - 11:23 AM GMT

You've heard the expression suck and spit. We have just that folks. For now anyway. The Dow broke out on a closing basis, but it's only thirty stocks. I wanted to see the S&P 500 break out above its old high on a closing basis at 1897. It reached 1902 intraday yesterday, but closed below. Today it fell hard. The Nasdaq cleared its 50-day exponential moving average yesterday intraday as well only to close below. Today it fell hard again. It's not the action you want to see at breakout levels. Small caps are simply terrible.

The bifurcation continues, while the market tries to decide what it wants to do. The range, the chop, the nonsense continues. The market ultimately needs to fall hard to unwind the bifurcation. To unwind weekly and monthly negative index-chart divergences and to unwind froth. Who knows when it'll take place, but this market is not healthy for traders as most are being whipped all over the place. Action one day is not followed up the next both for longs and shorts. The worst possible environment since it's so emotional.

Hopes were very high based on the Nasdaq and those small caps stocks that were outperforming for a couple of days right at the breakouts. But once again, the bears came in where they needed to and held the breakouts from occurring. The Nasdaq and small caps were lagging so badly with those froth stocks, so oversold it seemed as if the rally was a prelude to the Nasdaq taking out the key resistance at 4141, or the 50- day exponential moving average. Most were thinking it was a slam dunk as the feelings are always running high when something positive seems to be showing itself.

When things look promising is when you have to be most on alert. You can't or shouldn't anticipate a breakout. You need to see it, and then respond. The daily S&P 500 and Dow charts were looking good, so the thinking was the Nasdaq and small caps will have to play catch up. Maybe the catch up will ultimately be the S&P 500 and Dow playing catch up to the Nasdaq and the small caps. Just because a few indexes are misbehaving doesn't mean it has to be a drag on those who are more positive. It can be quite the opposite, and right now there's no real way to know which way things will eventually go. Keep calm. If we have reason to celebrate a breakout on a closing basis we will do just that. For now, there's nothing to celebrate or feel terribly about.

The banks and financial stocks don't look great right here. We all know things can turn, but the leaders in the financial sector are back testing their lost moving averages with long tails down, which clearly isn't very bullish for the short-term. The financial stocks need to lead, but there's no current technical indication that they're going to do just that. After hours there is a bit of hope for the tech world as Cisco Systems, Inc. (CSCO) surprised to the upside, but the futures aren't exactly blasting up. Old guard froth continues to get slaughtered on their earnings reports, even after they've already been killed. See The ExOne Company (XONE) after hours.

The best advice continues to be to avoid froth and play lightly in good stocks that provide dividends or have lower P/E's. One day at a time folks. It is what it is.

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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