Stock Market Monthly Losses Minimal....Market Internals Correct....

By: Jack_Steiman

The Dow was down 1.4%, the S&P 500 1.5% and the Nasdaq down 1.5% for the month of June. Not much in terms of losses considering how overbought we had been and how high the bull-bear spread was. We reached the level of 36.4% more bulls but finished at 16.7%. You have to love that if you're a bull longer-term. It’s five weeks of churning to get the bulls to turn agnostic to bearish. Remember, this was a month with minimal losses. So from the perspective of sentiment, the market gets an A+ for the month for the bullish case. If we study the other aspect of what basically 1.5% worth of selling did, just take a look at those key oscillators we follow. We know that the market had deeply compressed oscillators to the top side. That couldn't last forever. MACD's at extremes not mention stochastic's and RSI's at levels that normally can't support buying to come. They were at levels that suggested some type of selling had to occur shortly.

With so little selling from a percentage perspective we see deep unwinding for sure. Nice pull down in the MACD's on the daily index charts not to mention on key individual leading stocks as well. Stochastic's, which we were up near the top reading of 100, have pulled back in many cases nearly half way. In some cases more than that. The RSI's are down from the 70's to the 50's. Again, all of this from basically 1.5% worth of selling. So yes, the month was full of whipsaw and churning with selling the winner, although barely so, yet the market did what the bulls hoped it would do. Folks are more bearish than they've been in a very long time and those lofty oscillators are lofty no longer.

The Fed is one everyone is blaming for this pullback, although deep down the market was simply just looking for an excuse to unwind. His comments last week about his pulling back on the free money train caused some to panic unnecessarily. I'm not sure if the Fed felt he was to blame, or not, due to his comments but it is more than interesting that over the past few days he has been sending out his Fed governor's to talk up the fact that he will be keeping the juice machine rocking on for a long time to come. That his words were misunderstood. He's not happy about a falling market, especially when it's approaching key support levels. He wants everyone to know from this moment forward that the free cash isn't going away.

There really is no way he can take away the sauce for if he did, the economy would fall apart. Think about it folks. This Fed has been blasting the system with 85 billion dollars monthly, yet the economy still has massive headaches. Unemployment isn't great. Manufacturing is barely over recession levels. Can you imagine where we'd be without the free cash? That's right and he knows it as well, thus, he isn't going to be pulling the cash out of the system any time soon. He's making sure his Fed worker bees are getting that point across the past few days. That will continue when he speaks again I'm sure at the end of July.

The market closed mixed today with the Nasdaq outperforming. Always good to see froth lead. Hopefully that will become a trend when the market tries higher again down the road. Apple Inc. (AAPL) hit 388 today and bounced hard. The old low at 382 from roughly six weeks ago, with today's bounce, was hopefully the low. If it is, and that's a big if, then it will help the Nasdaq in a big way as it is the most heavily weighted stock in the index. A break below 382 would not be a good sign, so we shall see, but today at least gives it hope that a double bottom is in place. The ugly part of today was the last fifteen minutes.

Some will blame it on end of the month stuff, but I don't buy it. I think the selling was real in that the correction is still ongoing, but there's no way to know that for sure until we get another big gap down to confirm. If we gap up on Monday that would be a bad sign for the bears. They need to follow through on today's sell-off. They have no time to waste. They need to act now. The bulls have some gaps below to protect while the bears have the same above. The fight is on. Things would definitely set up better technically if we fall harder in the short-term, but we shall see. For now, we watch to see if the bears can follow through on Monday. Interesting times.

Have a great weekend!

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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