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Stock Market Extreme Volatility Continues Below S&P 500 1150......

Stock-Markets / Stock Markets 2010 May 09, 2010 - 08:16 PM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleThe past few days have been something you don't see very often. 2000 point swings in the Dow each day. It really does blow your mind to watch this type of volatility on consecutive days. Not the normal behavior for sure, and the fact that it's taking place below critical support at 1150 S&P 500 on high volume, doesn't exactly bode well for the bulls short-term at the very least. When markets are ready to change course, we often see violent moves. The side that was enjoying the trend is fighting to keep it alive. The new side taking over will have nothing to do that. Then comes the massive moves on a daily basis that will more than make your head spin. So what can we take from this action overall?


The uptrend is broken. For now it's gone. No denying that. The heavy volatility below 1150 says big money was selling all attempts to get it back above. The bulls unable to take back what they lost and the bears gained. We have to adjust to this reality and play accordingly. If we had broken down on light volume without big gap downs along the way I'd feel better in saying that you can't really trust this breakdown. However, we did have huge volume. We did have a terrible advance decline on the breakdown. The bulls did fail to gather enough energy to take back what they lost at S&P 500 1150. It's undeniable. We broke. Now the job will be to understand where we go from here.

Ok, so where do we go from here?

We're trading between two key levels. The 200-day exponential moving averages (1099) S&P 500 and the breakdown at 1150. So it really comes down to which level breaks first with force. Based on what we just witnessed, the odds say that over time it'll be that we lose 1099. The reason beyond what we just saw is how easily I've watched the Oil Services HOLDERS (OIH) lose its 200-day exponential moving average. Like a hot knife through butter. No fight at all.

That's just one sector and thus you'd expect our markets to fight harder but it is so interesting to see the powerful oil contract just give way without even the hint of a fight. 7% below. The bears will throw everything they have at that 1150 level, and with them having the upper hand, it shouldn't be too hard for them to hold this line in the sand, especially since the 20- and 50-day exponential moving averages are now racing down to meet this 1150 level. If you get the 20's and 50's to meet this level before the bulls can get through, the odds of getting back above decrease dramatically.

One additional problem this market is also facing is the fact that our market was the last bullish one standing. Just about every other world market had recently broken down, some severely so. The United States market has held up. Normally we see other markets break down and then we follow in time. It didn't seem this would be the case as our market was really rolling along. However, history did repeat itself and now we have joined the rest of the world in a market that just isn't very good looking technically. It is true that most of the other world stock markets are getting oversold on their daily charts and our market is there as well so we may be in for a short term bounce but the bottom line is there are no markets globally behaving well at all. Makes you wonder what the rest of the world is seeing that we just don't know about yet.

Let's spend a second on fed Bernanke. I have been wondering for quite some time why he hasn't changed his language to indicate that he'd soon be raising rates. Everyone was expecting it and we all know he would do so very slowly so as to not shock the financial system. Yet, month after month, even as the economy seemed to be improving, he refused to say the magic words of rates will likely need to start moving higher. Maybe he knew what we all didn't know. Maybe he saw things falling apart on a global level that said he had better keep things incredibly liquid. I can't know this for sure but it does seem to make sense on some level. Maybe a lot of what we're seeing in terms of growth is very temporary and he knows it. 290,000 in terms of jobs creation should have been great news yet was ignored. What does the market know, you ask yourself yet again!! Bottom line is, he has kept the rates extremely low without any hint of them going higher in the face of a supposedly improving environment economically. Seems odd.

The 200-day exponential moving averages are at 2211 Nasdaq, 1099 S&P 500 and 10,231 Dow. All three are above for now and with the market oversold short term you would expect these levels to hold for a while although never a guarantee as oversold can stay that way. Futures were up after hours Friday evening but not a sure thing for that to hold over the weekend. If we lose all three of these critical levels on these key index daily charts the market is in some very deep trouble for the near-term. 1150 S&P 500 is now massive resistance and the bulls will have more than a difficult time getting that back. If we rally some and unwind the oscillators back up yet hold below 1150,that too will be a red flag for the bulls. It doesn't look good for the bulls right now. Day to day while we let the volatility slow down before entering any new plays.

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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