Stock Market Doing What It Was Going To Do...

Stock-Markets / Stock Markets 2011 Mar 15, 2011 - 03:04 AM GMT

Markets have a way of doing what they need to do regardless of whatever news is out there. The situation in Japan is incredibly sad. Breaks my heart, and I'm sure it breaks the heart of each and every one of you out there.

Is that what caused the selling today? No! Not at all. If it did, the market would have been down far more than what it was today. This market has needed a correction for a very long time. Not a single one of you will deny that as a fact of the stock market. Very overbought daily and weekly oscillators had to roll over at some point. You can only stretch the rubber band so much before it snaps back and gives itself a breather. So you can say that Japan was a catalyst, and maybe to some degree it was, but believe me folks, the market is simply in correction mode and following the path it planned out for itself. It'll find a bottom no matter what news hits when it wants to do that as well.

News is really just television noise that gets talked about because they can't understand why things are occurring. When lost for answers, blame something and so they do all over CNBC, Bloomberg, and the like. Just noise to fill air time. Bottom line is the process began when the Nasdaq topped out at 2840. Now well over a hundred points later the trend continues down to unwind things further on those daily and weekly charts, which needed it to say the least. Again, the market's doing what they need to so it can climb that wall of worry, which only happens when you create some real fear. That process is well under way. The deeper we sell the more we create fear as it's by far the most powerful emotion governing this stock market and always will be.

A lot more stocks are breaking down. Lots of Internet stocks have led that charge. The likes of Google Inc. (GOOG) and Amazon.com Inc. (AMZN) to name two major leaders. And a few others, such Goldman Sachs (GS), International Business Machines Corp. (IBM), and Molycorp, Inc. (MCP) just to mention a few. There are others now wherever you turn, which is normal to see in corrections as more and more join the down ward sloping party below their 50-day exponential moving averages. This is what you want to see as this is what creates deeper unwinding and more fear. When enough sectors have lost their 50-day exponential moving averages you will notice lots more talk about the end of the bull market.

You will also notice a huge spike in the bull-bear ratio along with oversold daily charts. It takes a confluence of events to get markets to get where they need to be. Losing those 50's all over the market place is definitely the road to finding a bottom. Remember that the market is going to look awful when it's ready to find its bottom in this very normal looking correction. It'll take a lot of mental power to buy when the signal comes because fear will then be in total control. The signal isn't flashing green yet. It looks like more work, even if lateral, is going to be needed for the short-term, but the process is progressing as normal from what I can see.

When looking at the daily and weekly charts you can clearly see the critical levels of support as moving lower. My focus on support comes from looking at the Nasdaq and S&P 500, as the Dow has too few stocks in it to take all that seriously, although it definitely deserves some merit. The S&P 500 has a nice gap running from 1288 down to 1283. This is what stopped the selling at the lows today. Below that we have the 20-day exponential moving average at 1264 on the weekly chart, which has not been visited for quite some time. On the Nasdaq we have support at gap at 2670, and the 20-day exponential moving average at 2660. A very strong area of support that's only ten points apart, and at the least, should stop the down trend for the short-term.

That doesn't mean we won't go lower after a small bounce. You just try to understand where the market will find strong support, and possibly its bottom on this move. The oscillators on the short-term charts, once those levels are reached, tell us a lot. If they don't impulse up on the bounce, then we go lower still. I'd say focus on S&P 500 1264 and Nasdaq 2660. If those levels go we could see a more explosive correction down to 1200, or thereabouts, on the S&P 500 and around 2500 on the Nasdaq. Nothing out of the ordinary if that does take place.

The best advice I can give folks in markets such as these is to keep things quite a bit on the light side of trading, no matter what side you think we are on for now. I believe the bull is still with us another year or so, thus, I focus on buying weakness when the right signal is given. I also am not big on shorting a primary bull market, and again, that's what I believe we are in. 1200 S&P 500 would not take us out of this bull by any means. We are in a tough phase, mostly down, but we are unwinding nicely on those daily charts in particular. It does seem as if overall down would still be best, but lots of bounces along the way for sure. At some point, the next buy signal gets flashed, and up we'll go again. However, that could take longer than most of us would like to believe is possible, thus patience is key. It's necessary to be patient here folks. So give it your best and don't get frustrated by that exercise of caution.

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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