Stock Market Bouncing Off Oversold...

Stock-Markets / Stock Markets 2010 Jan 20, 2010 - 03:00 AM GMT

But the market needs more unwinding. It can do it in two ways, of course. It can move in a base or laterally. Up, down, up, down, etc. The other way is a good old fashioned period of harder selling. One way or the other it should get the job done over the coming days and weeks. We are simply too stretched out here on the medium to longer term time frame charts to continue blasting higher but that doesn't mean we're going to fall apart.

To the contrary, I don't think that's in the cards at all although if you look around, wow there's a lot of doom and gloom out there. It shocks me how many writers and posters of market information are out there saying look out below. That the bear market has resumed. What is out there technically to suggest such a happening is what I'm trying to understand. There isn't a thing and it truly befuddles me how many are declaring death to the market.

Once some selling takes place it gets nasty in a hurry. The next big selling down, which is out there for sure, is going to get these pessimists rocking with death to the market write ups. We bounced after a quick move lower today at the open as the oversold 60-minute charts which I had spoken about pre-market were simply too oversold for any sustainable down side action. They were in need of some upside action to alleviate those oscillators which saw stochastics print below 10 and RSI’s 30 or lower. Just unsustainable on the short-term time frame charts. The rest of the day the market trended higher overall and thus that unwinding has begun. Good action which bodes well down the road but for now, it's likely a pause before lower although you can never rule out somewhat higher first because remember, we're in a primary up trend. Do not get lost in that reality, especially when we have our next decent down day.

Tonight we have good earnings from International Business Machines (IBM), but not great earnings. The stock is down and this opens the door to some further selling tomorrow. The question is what type of selling will we get? Let's hope it’s good and allows for some deeper selling but don't count on a blood bath. The earnings thus far have been good. Not great. Good isn't bad considering the environment we're in right now. Most big cap technology stocks that have reported are saying good things. Cree (CREE) tonight is an example of that. It's going to take some very bad words from the big caps to get this market to totally give up the ship the way many are expecting. If earnings remain mostly favorable, you can forget about that collapse so many are waiting on.
This game is all about earnings, ultimately, and if the market suspects the worst is over, then the market has seen the lows from back in March. We won't even come close to those levels if this trend in earnings continues. A big if, but for now, not bad at all. Could that change as the year moves along? Sure it can. Only time will tell that tale. Since we're only interested in the short to medium-term, the earnings this quarter are saying we don't break down. Pull back to unwind. Break down? No!

Citigroup (C) reported their earnings this morning and it fell hard initially although it put in a higher low than it put in some weeks back when they did their secondary offering. The good news from there was the massive reversal in the stock today, closing well above the open which is bullish more than anything else. Something the bulls needed to see from this stock teetering on the edge of disaster. Not only did it close above the gap down open, it closed just shy of its highs but also quite green. Solid and offers hope for the stock and the financial sector when this market is done unwinding those overbought oscillators. The banks/financials are huge for this market of course thus watching the behavior of the key stocks within this sector during their earnings reports is crucial to understanding the future direction of this market. C and JP Morgan Chase (JPM) are now out of the way and so far not bad. Not great but not bad.

I don't expect the short-term to be easy at all. The next many days to weeks will see a mixed report of earnings news plus we have a market that needs to lose some of its retail bullishness. A little deeper correction would rapidly take care of that problem. A couple of days of solid selling would turn the tide rapidly as I remind all of you that fear is the greatest emotion in this game. Some selling will get the bulls running for shelter. Two bear markets in the past ten years will do that. Expect some rough days in the near future but try to keep your focus on what's taking place at as that unfolds. The market is far from dead here. Patience is the name of the game now. Buying weakness is also the name of the game.

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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