Stock Market Daily Charts Show A Strong Reversal Lower....

By: Jack_Steiman

Last night there was some actions taken by the heads in Japan. Their stock market rocked higher, which naturally caused Europe's futures to rock higher, and finally gave our futures a massive life higher. The intervention has to limit, it seems. One leader after another from all over the world are coming out with drastic actions to ensure good times for their economies. Every time the market tries to fall for a week, or so, we get the Government's kicking in to save mode. They won't allow those bears any love. No wonder markets usually go higher. It's just not an even playing field, but we have known that for more years than we can count, unfortunately. Regardless of how much the intervention may be inappropriate for the long term, action will be taken. They'll deal with the consequences later. Let someone else deal with it.

So last night we saw it again, thus, our futures rose allowing us to witness another massive gap up. Two days in a row is no small matter for the markets technicals. If the gap up today was to run higher without being filled, the bulls would have something big going on for them. But that wasn't the case. The gap did get filled intraday, thus, the bulls only have yesterday's gap up as big support. That said, it is quite the gap and thus will be tough for the bears to get that gap to disappear. On the other hand, we saw a strong move lower late in the day. Not the type of first-test rejection the bulls wanted to see. The bearish close was nothing for the bulls to be celebrating over. A long tail is one way to put it, but beyond that, you don't want a huge move down off a key back test. You want a small-move lower that hovers close to the breakout area. Then, eventually, you get the move. The massive move lower off the back test suggests the market is still stuck in this nasty bear flag with no sign of it letting up any time soon.

When markets come off their bottoms they often run up to moving averages that will create road blocks for the short term. For the S&P 500, it ran right up to its 20-day exponential moving average and failed. All of the key-index charts basically ran in to their 20- or 200-exponential moving averages and failed, but it's quite normal to fail on the very first test of key moving averages. It can take three, or even four, attempts before clearing a critical moving average acting as resistance. It will be real easy to get bearish here simply because of this failure, but those compressed oscillators across the entire daily-chart world will make selling very difficult for the bears, thus, it may be wise, if the oscillators set up right, to take a long ETF play, but we shall see how things set up.

No play would be for the long term, so let me make that clear, and that's if we even take on a play soon. The late action today may prevent any plays for a while. All plays are short term in nature now. If we clear the lowest exponential moving average, we then have to deal with the next one. Above the 20's are the 50's, and then the 200's, thus again, nothing will be simple for the bulls. Best to buy weakness for sure. If the bears take out the open gap I spoke of above, then today's 20-day test may be the last one we see for a while. The 20-day test rejection made sense, but the rejection seems a bit too intense for my comfort level.

Well folks, never say never. The bull-bear spread closed on Friday at the level of -2.2%. Yes, that's a MINUS sign before the first 2. Most thought it impossible, but I had warned that at some point we would likely get close to minus, if not actually go minus. That's when the markets were as complacent as humanly possible. Fear requires action, so I figured it wouldn't take too much selling to get the numbers to head south is a hurry. The last big push lower caused the minus reading, one which can, but not always will, cause a market to bottom for at least the short term. The good news is that it will be a long time before trust comes back, thus, we won't have to worry about froth for quite a while. Once folks get burned badly they sit on the sidelines for a while and refuse to get too happy again. A little bit, maybe, but not the way they did before.

That can take many, many months if not years. Parting with hard earned dollars can turn anyone shy from taking too much risk again for a long time. The market always accomplishes what it needs to, even when it seems impossible. 46% on the spread was what we were dealing with, and it was only a few months ago that we saw that reading. Yet here we are at -2.2%. We may not see any additional minus readings, but the trend up will be slow. That's good news for the bulls. Let me also remind you that the spread can get much lower if things fall apart fundamentally around the world, and our global leaders run out of tricks. Don't let your guard down. There are no buy signals here. Not at all, so don't get complacent. All we have done is rid froth, but we're still dealing with poor monthly charts that are deteriorating fundamentals. One day at a time here. Getting aggressively long or short makes no sense to me whatsoever, but, of course, do what feels right to you.

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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