According to Mike Paulenoff, author of MPTrader.com (www.mptrader.com):
Another terrible finish Tuesday, capped off by Palm Inc. (PALM)'s announcement that the company is cutting its revenues in half! I don't know if that is the reason for the aftermarket decline in the e-Mini S&P 500 to 681.50 so far, but it certainly is not a positive influence.
During the session the major equity market ETFs like the SPY, Q's, and DIA's all were down 2.00%-2.50%, while many of the sectors were unchanged to up on the session, such as the SMH, DIG, MOO, KOL, GDX, EEM, DBC, etc., which suggests perhaps that hedge funds are shorting the major equity market ETFs to protect their long positions in individual names or specific sectors.
Once Mr. Market finds a reason to force the lifting of those hedges, the major averages will lift like a Saturn Rocket.
One area of opportunity continues to be gold and its corresponding ETF, the SPDR Gold Trust (NYSE: GLD). The weekly chart of spot gold prices remains very bullish. That said, however, does not preclude prices from pressing further to the downside as it works off an otherwise over- bought condition after it hit $1000 on 2/16. Thus far, gold has pulled back to $910, or 9% from the high, but let's notice that the price structure is confronting a near vertically positioned, rising 10 week moving average. In the past, such a sharply up-angled MA has served to support a correcting gold price structure (see designated area on the chart from 2005-2006, and 2007... ... 2008) when the correction comes soon after the positive crossover of the 10 and 40 week MA's.
In the current timeframe, the positive MA cross occurred in early Jan., around $860, from where gold prices thrust to $1,000. The current test of the sharply rising MA represents the first correction after the MA crossover, which usually results in a period of consolidation and then resumption of the dominant uptrend. At this juncture, a break below 885 ($30 beneath current levels) will cause me to question the past price behavior in it first test of rising 10 week MA.
Gary Dean, author of MarketsPath.com (www.marketspath.com), also anticipates a snapback rally:
The futures stayed strong overnight into Tuesday and the indexes gapped up. I sent out a pre-market update saying we may trade the 2nd position and sell it at the open. I was waiting for any sell signals to trigger the sell for us. We never got it, but the indexes did exactly what I thought they would, fade the gap open.
The pullback was quite intense and I was not comfortable at all during the decline. With all of the indexes sitting right at support levels, I let the trades run. We got a massive reversal and I was almost certain we were going to be able to stamp wave 5 of 3 complete, which opened the door for the 770 upside target.
The short-term charts were showing the makings of a 5-wave pattern, which would have confirmed the wave 3 complete.
We got the pullback as expected, which should have been the short term wave 4 down with wave 5 up to higher highs to follow. Everything was going as planned, until the pullback spooked some traders and volume picked up on the downside.
This now opens the door for one more push below Tuesday's lows, which should finally complete this wave 5 of 3 down. I believe we are within 10 points SPX of completing this wave 5 of 3 down, where we should see the anticipated wave 4 up to the 750/770 area. The huge amount of buying interest from the institutions down here, combined with the buy signals on the 15's and 60's, tells me we are close. There will be higher levels in the coming days and I believe the move will be fast.
Jack Steiman, author of SwingTradeOnline.com (www.swingtradeonline.com), is cautious, though too expectant of a strong snapback, albeit temporary:
Tuesday was another day where even some very strong oversold conditions could not get the market moving higher. The one problem that existed throughout the day was the advance-decline line, which was negative throughout even when the markets were rocking higher, and we all know by now that a poor advance-decline line while the markets are moving higher is a big red flag for the bulls to pay attention to. That poor advance-decline line caught up to the bulls with one hour left in the day. Bottom line for the day was the bulls tried to hold and protect a close in the 6's for the Sp but even a gap up off of very oversold couldn't keep the bears at bay. Poor overall action. I know this has to bottom somewhere for at least a near term trade higher but we have yet to see the type of flush and reversal that says that time is upon us. Until then we will stay with the trend at hand which is clear enough to all of you.
The banks could not get going once again today and its abundantly clear that without the banks it's going to be virtually impossible for this market to have any meaningful rally. The big dogs still out there still to be more of a headache to the market than not. It seems the market wants the supply from stocks like Citigroup (C) and Bank of America (BAC) off the table. The next one on deck, Wells Fargo (WFC), is struggling mightily, and MetLife (MET) in the insurance business is falling apart as we speak. There are many others that the market seems would rather be gone altogether. The technology stocks are supposedly doing great but overall I don't see it. Barely holding on and ready to take out the old lows. Just because one sector out of the masses is barely holding up is not a good reason for optimism. The banking sector continues to bleed out and for now that means there's little hope for a market that feels owed a large rally just because things seem so depressed.
Now, before all of you just stop reading and getting fed up with this whole mess, know that there will be a very strong rally to come. You can only stretch the rubber band so far. No matter how bad the news is, at some point we will go higher.
The most important aspect of that rally will be whether we see the type of internals that say the worst is truly over. We can all get very emotional about something that looks very positive but we must do our work to see whether the move up in price will be confirmed by those internals, especially those Macd on the daily charts. If they're not we must be ready to get out of the longs that rally will allow us to be in on a moments notice and turn around and short once again, even if it's tiring to do so.
