The bearish case, which just a few days ago, looked pretty good, now has a bit of a problem. Let me first say that the bearish case is far from dead. There are lots of possibilities out there that can play out bearishly but the near term picture has changed a bit. The biggest headache for the bears is the fact that we had some very overbought daily charts with some nasty negative divergences in place. These charts have really unwound most of the overbought conditions and the Macd's have thus pulled way down, working off those nasty divergences. Do they now look good? I wouldn't go that far but they have played out quite a bit and now we have those Macd's, once at very lofty compressed levels, back to their zero lines. Once they unwind back to their zero lines, the bearish case becomes much more questionable. It can still work but it won't be nearly as easy. The Macd can certainly push well below that zero line but it's never as easy to do once all of the oscillators have unwound quite a bit such as they just have. Stochastic's once near 100, are now near 30. Rsi's once at or even above 70, are now near 50. The 60's are unwound as well and looking pretty decent. In addition, many stocks are exploding off of 50 day tests now thus the market is not going to fall below the 50 day exponential moving average without first blasting up some. Big money is still buying strong stocks back testing the 50's, which is just what the bears don't want to see.
So what is the down side risk in this market? SP 1005 and Nas 1933 which is where those 50 day exponential moving averages exist today. They change slightly each day but the moves are now very small as real price moves closer to the existing 50 day number. We have traded above that level for so long, it almost guarantee's that we'll see a strong move off of it should we get that low and getting that low is a real possibility if tomorrow's jobs report is poor. It doesn't necessarily even need a bad jobs number to go down that low but a bad report will certainly, if nothing else, expedite that process. We can't ignore the big down day from Tuesday but we also don't want to necessarily make more of it than we should. It started the market down off those negative divergences. The unwinding has been rapid and we're not even near the 50's yet thus I would warn anyone from getting too bearish should we sell off to those levels in the days ahead.
Look, just because the market doesn't look ready to collapse and give up those 50 day exponential moving averages doesn't mean that won't be it's destiny some time out there in the future, even the not too distant future. However, my job is to try and time markets with the best risk reward for all of you.
There has been just too much unwinding on those daily charts to expect this market to just heave ho and crash out as many are now expecting based on those recently existing negative divergences. The market is unclear at best. We're now dancing between the 20 and 50 day exponential moving averages.
Not really much to go by. This is when you have to trust what the charts are telling you and with so many individual stocks bouncing hard off the 50's today, and with many indexes printing doji's today off of the recent down trend, expecting big down moves here seem very unlikely. I spent days being patient, learning and now I hold a bit more of a bullish tilt short term, even if we pull back to the 50's. I can't rule that out. One bad report tomorrow morning should do that trick but I wouldn't count on that either. Russian roulette there. A complete unknown. i have to let stock action dictate things here and thus I think there is 2.5% down side risk short term but no more and I have to say I'd be surprised if that took place.
We have longs out that fit the bill for bounce candidates. Stocks off recent down trends that printed doji's today or are very oversold on the 60 minute charts and or the daily charts. Stocks right off their 50 day ema's, etc. All you can do is try to find the best candidates and run with it. Good stocks that have these features attached to them usually, not always, but usually do well over the very shot term. These plays are not marriages. Make sure you understand that. They can be taken off in a day. This market overall carries great risk both ways and being nimble is the only way to play. Only a move above 1039 Sp (old high) says things are back in the bull camp. Only a move below 974 (50 ema) says things are really bad for the bulls and great for the bears. This is a day to day market, like it or not, and being safe and appropriate are the only ways to play.
