Stock Market Ugly Weekly Charts...Still No Reversal.....Froth Remains Extremely High..

By: Jack_Steiman

The market is trying to find a way to hang in there. Yes, there was a bit of selling this week, but not much to talk about. Not nearly as much as many would expect considering how many problems the market is currently facing. The bears are somewhat in disbelief that the market hasn't fallen under the weight of froth alone. Gap downs get bought up. The bears are acting almost fearful of getting involved due to the markets inability to find sellers when things look really bad for the bulls. So, the week came and went, and in the end, the bears feel a drop better about things, but I don't think they feel satisfied. Maybe fearful, but definitely not satisfied.

They are wondering just what it will take, because not only did the market have big problems coming in to the week based on froth and technicals, but you can add overseas headaches regarding civil war and major unrest. While there was some selling there was absolutely no technical damage, thus, things remain open for next week. It's not a slam dunk that the markets will just fall because they need to correct. The market will most definitely correct, but probably do so when folks least expect it, or when the bears have totally surrendered to the possibility. Just the way it usually works. That said, the market can begin a major correction at any time. Just understand where we're at and adapt accordingly.

The first part of the headline says it all. UGLY weekly charts, and this evening you'll see a couple of them in the Dow and S&P 500. Very Nasty negative divergences. You never know when the negative divergences will kick in. You don't anticipate it. Most that have will tell you they wish they hadn't. Loads of pain. You see it, and then you respond to it, and not before unless you like to take enormous chances, that I believe no one should, but, of course, that's up to the individual.

Some want to capture 100% of a move, but by trying to do that they usually get nothing but losses. The charts are ugly, however, and, thus, be on alert that at ANY moment, based on divergences alone, the market can take a beating. It may take a day or a week or a month to kick in, but just be aware of what you're facing so you can, once again, adapt to the circumstances. Maybe we make another new high first, but just know that it's ugly out there on those weekly-index charts.

We began the week with the bull-bear spread at a ridiculous 45+% spread. That is down right, yes, there's that word again, UGLY! In normal times this alone usually leads to a pullback that can easily exceed 10%. We probably ended this week near the same level, give or take 1%. At some point it'll have to go back to the twenties or teens, so yes, there will be an important correction.

There's clearly and obviously a theme in this letter. The market is under intense pressure in terms of trying to hold up. So many things going against it from froth to technicals. Again, you have to see the proper reversal first before getting bearish. You can keep some small exposure long but be very careful about getting overly involved. Sure, we can make new highs first. That said, recognize the problems and make sure you keep yourself safe from unnecessary losses.

The S&P 500 has key longer-term support at a very interesting level. 1897 is long-term horizontal support while a pennies below that literally we have the 50-day exponential moving average If and when, and only when, we lose 1897 the charts remain favorable for the bulls. The 20-day exponential moving average is at 1922 thus that's the first stop of important resistance but in the end it's ALL about 1897. A strong close below and the selling is on. The level on the Nasdaq being the bottom of a large gap up at 4186.

The top of the gap is key-first support at 4204, but in the end, losing the entire gap is key, and thus, the key, important level is 4186. Nasdaq below 4186 and S&P 500 below 1897 is death for the bulls on a closing basis. One day at a time as we watch very closely for the first signs that a correction is about to begin. For now things remain status quo. Nothing more than a casual 70-RSI pullback has been taking place.

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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