Stock Market Continued Bearish Action

Stock-Markets / Stock Markets 2010 May 24, 2010 - 06:05 PM GMT

I tried to think of what else there was to say but horrific summed it up best, I thought. Clearly, we are in a down trending market. I don't think anyone would argue with that premise. If you do argue it, I feel sure that you're totally wasting your energy. With a clean break below the 20- and 50-day exponential moving averages and with some indexes below their 200-day exponential moving average, what good is there to say about things. Nothing if we're all honest about things.

Today was another day where we gapped down again although we were dynamically off the lows that occurred overnight when the European market was down. We closed about 100 points off the overnight lows, but a gap down still took place. It didn't take long before the Nasdaq started to lead back up as an investment put the latest 400-dollar price target on Apple Inc. (AAPL). With an upgrade also given to Google Inc. (GOOG), the Nasdaq has two strong leaders taking the index higher, although gains didn't last very long.

The S&P 500 and Dow had no such upgrade fortune, thus they lagged behind all day. Bifurcation isn't good anyway. When one index hangs in there while the others don't, that's not bullish behavior by any means. When just a few stocks carry the day there's nothing good that comes out of that. With a late rush down in to the close, the exact opposite of what took place Friday, the market sent another message to the bulls by telling them that just recovering the 200-day exponential moving average won't be easy.

Not only is there the 200-day exponential moving average at 1102, there's also the gap at 1100 on the SPDR S&P 500 Depository Receipts (SPY), which means there's now multiple reasons for the S&P 500 to struggle if it got up near 1100. Now we have another problem for the bulls. The 20-day exponential moving average has crossed the 50-day exponential moving average and is racing down and getting closer and closer to that confluence of gap and 200-day resistance.

The 20-day is now well below the 50-day, but most importantly, it closed at 1136 today and that's down from 1164 where it was a week ago. If the S&P 500 hangs down near these levels over the next few days the 20-day will race towards 1100, and this will now add yet another reason for why the bulls will have an extremely difficult time gaining any upside traction. If we get the 20-day exponential moving average to join the 200-day exponential moving average where we also have the gap, that would be very bad news for the bulls.
Key financial stocks that are in bear markets such as JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Wells Fargo & Company (WFC) and Goldman Sachs (GS), all blasted lower today, continuing their trend of reversing lower any time they have a good day or two. The financial sector has joined the commodity sector in a big way in a bear market. These stocks are all very broken and could use a bounce to unwind oversold, but they are just not able to sustain any upside before the sellers come rocking back in.

The ultra-short ETF Direxion Daily Financial Bear 3X Shares (FAS) is imploding and is now in a bear market, trading nearly 25% below its 200-day exponential moving average. With GS unable to bid and Bank of America Corporation (BAC), and all the other financial's I just mentioned, having global problems, it's hard, short-term, to imagine these stocks bursting back higher and taking back their lost 200-day exponential moving averages. Anything is possible as unexpected news can always come out of the blue, but barring that, these stocks are all in nasty down trends that is putting incredible pressure on the overall market. With two major sectors in bear markets, you have to wonder what it will take to get this market to reverse out of its confirmed down trend.

The market is trading between the double bottom at 1044 low made in February and the last low just made at 1055, and the gap and 200-day exponential moving average at 1100. If we break down and close below 1044 that would be very dire news for the bulls and would tell everyone to look out below. A double bottom breakdown measures well below 1000, but let's not get in to that until it becomes a reality. Let's not put the cart before the horse. It's about who wins out. Will it be 1044 or 1100? If the 20's keep diving lower, the odds favor losing 1044. It's not great looking for the bulls at this moment in time. Please trade very gingerly here. Do not get aggressive. The overall action remains bearish short-term.

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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