Stock Market Still Going Nowhere...Bearish Overall

By: Jack_Steiman

The market keeps absorbing bad news report after bad news report and refuses to give it up. Doesn't mean it won't at some point, as it likely will, do just that. However, in the face of a Philly Fed report showing a contraction of 7.7%, the market still won't break. The excuses are out there with the most talked about one being the market wants to see the jobs report on the first Friday in September. Fair enough. I can respect that, but the news leading up to that report has been dismal at best, especially on the employment front as we had our first 5 handle on claims just yesterday.

Another reason being far more simple in that we keep getting oversold on the 60-minute charts, and thus we are bouncing. That argument gets old fast as we are not even close to oversold on the daily charts where we see RSI readings in the 40 area. The bears can take it if they want it badly enough. It seems as if they're always covering and hesitating at key support levels. Again, the excuses are getting old. The news is bad enough. Can the bears take it and run? Not yet, but don't count them out. They still have the market at least down trending lately and we're very close to that key level at 2170 on the Nasdaq, so stay tuned.

There are many sectors in bear markets and many other in neutral markets. Not much is in a bull market, but the areas where bear markets exist have heavy weighting in the market, and this fact alone can prevent the market from trying to recover too much. When the financials are rocking lower along with the majority of semiconductor stocks, you have a very difficult environment for stocks. It starts to bring the rest of the market down over time, but we still have some decent places to hide our money if we need to be long. Railroads aren't bad. The restaurant sector is fine. Commodities are fine as well. Sooner or later one side will carry the other, but it's still unclear who will carry the heaviest weighting.

Trying to understand why a market does what it does is really a waste of good mental energy better used elsewhere. If you take the fundamental news by itself over the past week you'd think the market would be down dramatically more so than it actually fell. You have to play this game from an agnostic point of view so as to not be skewed by what you think should happen. By all metrics, this game should be lower, but it's not and thus we have to adjust to what is, not what we feel should be. It's the mental noise of should be's that kill most traders. Just try to remember to let the technicals do the talking. The more open you are to playing what you see and not what you think is right, the better the chance you'll have for longer-term success.

The internals are eroding for the most part. On down days we are seeing much heavier volume. We are also seeing much more in terms of decliners over advancing issues. Even with today's rally back from the dead we saw much more in terms of losers over gainers. That's not great news for the bigger picture market outlook. It would be healthier if we could see better advancers to decliners on the down days where the spread isn't so large. We are seeing many bigger down days showing 4, or 5, to 1 decliners over advancers. Sometimes the spread is even larger than that. On the good days we are lucky to get 2 to 1 in terms of advancers over decliners. In other words, the story here is that most stocks remain in bearish trends and that'll need to change soon or this market will lose major support at 2170 on the Nasdaq with some force.

2170 is key longer-term support on the Nasdaq. If the symmetrical triangle bottom gets taken out with force there is nothing to hold this puppy up. The bulls got a scare there today on the gap down that ran to 2160. All looked lost, but the magic wand got pulled out of the hat once again, and this allowed the Nasdaq to close at 2179. Too close for comfort for the bulls, yet on the other hand, a real opportunity missed by the bears. On the S&P 500 we see the big number at 1050 thus the Nasdaq would break first, which is normal action because beta gets taken out first while safety goes last. If we lose 2170 Nasdaq we will see the S&P 500 race quickly towards 1050. There is where it must hold because, if you lose S&P 500 1050 and Nasdaq 2170 at the same time, things can get very ugly very fast for the bulls. The bears will run wild, but they'll run wild enough if they can remove 2170 from the Nasdaq without S&P 500 losing 1050 quite yet. 1093 is the 20-day exponential moving average and 1098 is the 50-day exponential moving average, and thus that area will be major resistance on any bounce attempt by this market. All is not lost by the bulls, but they are in danger here. They need some very good news, and soon, to keep things from breaking down.

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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