Nasdaq Monthly Not A Pretty Picture...

By: Jack_Steiman

One thing that has kept me from getting ridiculously bullish over the past several months, and something I have discussed quite frequently, is the look of the index-monthly charts, from the Nasdaq to just about everyone one else. Extremely elevated both in price and on those momentum oscillators. They have stayed overbought for such a long time that after a while you tend to try or even want to pretend they don't exist. If you looked at them head on every day you'd feel like you would never want to own another stock until they've completely unwound themselves. Scary looking is putting it mildly. So we look at the recent selling and wonder if those monthly charts are finally starting to hit the market. That the news out there is meaningless noise, good or bad. That the only thing that matters is quite likely those monthly charts.

There's no way to know for sure, but it's my guess they're having at least some effect on how the market is trading, and why we have had such a difficult time breaking out over S&P 500 2134. The market has been resilient, and, thus, never count it out. For all we know we're simply making an attempt at S&P 500 2040 once again. Test number four, and that will be the bottom before we try higher again. There's no way to know until we get a bit closer and can study all of the oscillators in detail on multiple time frames. Even then, it won't be an easy read. That said, for now the market is struggling some, although yet to break down, and please keep that in mind. Above 2040 is still bullish, no matter how bad this selling episode feels. The monthly charts are playing out here some, but whether they're able to break us below that key 2040 level is still very much unclear. We'll know soon enough.

We know the bull-bear spread has finally begun to calm down. We've seen a drop below 30% for the last two weeks, and that is a pleasant thing for the bulls to feel good about. With the action from this week it is possible that we may see a sub 20% reading next Wednesday. That would be awesome. Keep in mind that fear requires action, which is why the numbers can turn down so quickly. That said, we're seeing bearish behavior ramp up on the put-call readings as well. 130's today was nice to see, if you're remaining bullish. At the least, it should give the market a snapback at some point soon.

It may not last, but the whole point is no matter where you look these days you're finally starting to see some real bearish sentiment come into the market and it couldn't come soon enough for this writer. It's awful seeing 30+% week after week, along with those really bad 40+% readings that came in to play quite frequently. It's not healthy longer-term when those types of readings are around week after week without any move lower to unwind. If the market goes in to a correction if we can lose 2040 on the S&P 500 it should take long to get the bull-bear spread down to 155, and hopefully, down to single digits. That would be a welcome result for bulls everywhere with the joke being there wouldn't be many to make happy and that's when you know the bottom is close. Anyway, for now, we're seeing a real improvement in the world of froth. It's slowly but surely disappearing.

Lots and lots of cash folks. That's what we need to be holding. This is not a time for taking daring chances, although there will be a snapback rally soon. That said, the market is losing more and more participants to the upside, and, thus, getting sustainable upside action won't be easy for a while. Do what feels right to you of course. Never let me get in your way. If you think it's time to be aggressively long then follow your heart. You may up being very right. That said, I think personally it's time for extreme caution and thus will play accordingly. The market is very risky here. When markets turn more risky, either from a bullish or bearish perspective, you should reign it in some and play it safe. At least I think that's the way to play things.

So we watch 2040 with a keen eye and react to a breakdown should it occur. 2040 may only be yet another test and then blast back up. One day at a time as I try to wrap my head around what's taking place bigger picture.

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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