Stock Market Violent Whipsaw Continues....

By: Jack_Steiman

It was a very, very wild day today. We saw weak action late on Friday. It figured to mean we'd likely see lower this morning in terms of those pre-market futures. Sometimes you get a clue from how a day closes and what takes place on the futures right away after hours. We saw the weak close and the futures move down some as well. So today would be weak for sure, right? Wrong. Strong futures simply got stronger as the morning went along. We blasted higher once the marked opened, and then things got very interesting. We kept running higher. The first two sixty-minute sticks suggested the market would hold up for the day. That reality lasted until we saw the 2pm hour hit.

Things started slowly, and then not so slowly, to deteriorate, the Dow dropping by roughly 140 points off the highs. It seemed as if the market was doomed, right? Not wrong again are we! The market rallied up, and actually closed above the morning gap-up levels by twenty-five cents on the SPDR S&P 500 (SPY) and three points on the Nasdaq. A really poor finish would have had those indexes close with black candles, meaning they closed lower than the gap-up open. The bears had their shot. They looked to be in the clear with an hour to go, but they just couldn't get the perfect candlestick close. It wasn't a powerful close by any means for the bulls either, but they were at least able to capture the gap-up opening prices with a finish slightly above those opens. The normal whipsaw for this type of market continued throughout the day playing constantly with the emotions of both sides of the coin. Bulls and bears alike felt good at certain times today, but in the end, it was the bulls who prevailed, although barely.

The mood of the market, as we all know by now, really swings about hard from day to day, if not, at times, hour to hour. The market has struggled for consistent upside these past many week, and we have seen the bull-bear spread move beautifully for the bulls as they have diminished in numbers as the bears have increased in size. Pessimism is growing. We see how that even up-days now hold more of a bearish emotional tilt. All day we were over 1.0 on the put-call readings, folks looking to short all the time now. Suddenly, no one is believing in this market any longer.

It wasn't one month ago that folks thought it couldn't fall. It doesn't take long does it for the dial to turn. The Dow up at one point today was nearly two hundred and yet put-call readings at 1.0 or higher. Amazing! So funny to see how things turn for the average trader. Give me what I want all the time or I'm taking my glove and going home. I'm switching sides. Sentiment is really turning well for the bullish case. It may take a while longer. We made need one more swoon down at some point soon, but the damage is being done against the bearish case due to the turnaround in how folks are viewing things. They're getting more and more pessimistic all the time, and that's great news for the bulls longer term.

Today we saw rotation continue as the cyclical's and the transports struggled and lagged badly. The transports haven't lagged much, but even with that struggle the markets, they held up very well. Once again, money finding a home when it needs it. That may or may not hold up, however, after we get the big news from the Fed Bernanke this Wednesday, things will get really interesting. The Fed will announce his usual speech on the state of the economy and whether he will continue to send liquidity through the system each and every month at the rate he has been doing so far. There are rumblings out there that he will lighten up on the free cash. I do not believe that will be the cash one bit. Not even a chance as he has said over and over that this won't happen until we sustain job growth for higher paying jobs.

Right now, the economy is only creating lower end jobs with a heavy majority of job creation coming from the part time variety. This is not what he wants to see, and thus, I believe he'll keep the cash coming. The market may need another pullback, even if he gives the right news, but if he does, getting sustainable downside action will not be easy at all for the bears. Patience is key but some exposure is appropriate. Buying weakness is best.

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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