You need to recognize a real change when it occurs. Hopefully, all of you can now realize that the market characteristics have changed from bullish to more bearish for the short-term. Once the bears were able to take out 1320/1315, or the critical trend line in play, it has been lights out for the bulls. It took three full attempts by the bears to get the job done, but they did it. They defended resistance over and over and kept pounding away at 1315/1320 and finally got the job done. To that you say it's about time, and it's good for this market. The bears have been bowing down to the bulls for quite some time now. Every time the bulls needed to make a move higher through resistance it seems they got the job done without too much trouble. Day after day and week after week this trend remained in place. The bears unable to put up a fight.
The pattern was clear. A bull market clearly in place. But then we saw a change in the pattern at the last top, which was the massive negative divergences on those index weekly charts. You put a 41.6% spread more bulls to bears and those combinations are where the top occurred. We've been slowly heading down the prior four weeks, and then last week, the fifth week in the down trend off the top, the selling accelerated. This is where we finally lost that trend line of support at 1315/1320. The bulls unable to come right back and take this level back. That's why you now see a real change of trend. What was once easy for the bulls to accomplish is no longer easy at all. Too much time now below 1315/1320, and thus, you should not expect the market to be able to come back any time soon. The down trend is now established short-term. We'll discover in time just how long we can expect it to last. The longer the better, but for now, the market has made a turn from up to down in the trend. Respect this reality.
What is still troubling from a sentiment point of view is how slow the move up in the bearish percent is. We've seen a decent drop in the bullish percent, but we have yet to see a real move higher in the number of bears. That is lagging, and as I reported a few times already, remains a sore spot for this market. We need to see the bears soar above the current 20.4% level. A move up towards 30% would be best for the bulls if they want this market to try and move up appreciably once again. 20.4% means more bulls are turning neutral and those who were neutral are staying that way. We need to see folks start to hate this market and get totally bearish. That would be the best thing for the bull market we're still in for now. As long as the bear number remains near 20% you can forget about another leg higher. Not going to happen. A few weeks below 1315/1320, I believe, will get the job done. Get those bears rocking and get that percent up to 30%. Still not enough bears is the bottom line. With last weeks bad market action I'd have to think we're getting a higher number this week. We'll find out Wednesday if the market action of last week ramped a more bearish mentality.
What led us in to this bear market is now leading once again after pausing for some weeks. Those horrific financial stocks are leading things lower again. Goldman Sachs (GS), JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C) , Bank of America Corporation (BAC), American International Group, Inc. (AIG) , and the list goes on. They can not find a sustained bid. We even saw a downgrade today by a key financial analyst, something you rarely see since these stocks have lagged for such a long time. The financials were just terrible today and are now on a new breakdown. Almost oversold, for sure, but they're breaking down. Oversold at some point will offer no more than a counter trend bounce that won't last very long. The banks are full of bad loans and are being held up purely by the good graces of fed Bernanke. Without him we'd be seeing many defaults all over the place. It's not good in the bigger picture, it is why we're holding up for now. It's best to stay away from the weakest places in the stock market. Don't catch the falling knife. If you need to go long, about the last place you should be looking at are these financial stocks. They are in a bear market. No argument about that. That part of the stock market is in a bear and should be avoided at all costs.
There is support at the 150-day exponential moving average at 1283. We hit 1284 on the lows today. Short-term charts are oversold. Daily charts are a bit oversold. We could see a small rally over the next few days of a percent or two but don't expect the world to the upside. The market is in a clear down trend with the wall of resistance at 1320. The 20-day and 50-day exponential moving averages are only 3 and 4 points away from 1320 as well. Not good for the bulls. This market is screaming for bullish behavior to be pulled in. Do not get caught up in small moves higher over the coming days. Unless we blow through 1320, the overall trend is down and I don't think we're getting through 1320 any time soon on the S&P 500. Cash is a wonderful position for the time being.
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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