Hollow red or green were the colors of the day. We had a large gap down today giving the bears something to feel good about. What you want to see if you're bearish is a gap down just as we saw today, but then you want to see it follow through to the down side for the rest of the day. This is not what we saw at all.
Right after we gapped down we saw the buyers come right back, which naturally frustrated the bears and caused many of them to begin covering their positions as the market has refused to fall very much over the past many weeks. With the doji that was printed on Friday, the bears were gearing up for this gap down and with the markets around the world getting hit overnight, they were ready for the day.
It is amazing I must admit to watch this market continue with its head down for now. Overbought not meaning very much at all and add in those negative divergences not meaning much either.
You would think that either one by itself could and actually should cause some sustained heavier selling for at least a short period of time but we're just not seeing it for now.
As the day wore on, we didn't just blast higher, but we certainly put those early losses behind us. We finished green across most of the major indexes. We are getting closer to tagging that 1060 bombshell of a gap. Eleven points away. I do not expect this market to be able to clear it on the first test. The key will be how much selling we get if and when this first test likely fails. If it is a weak and shallow pull back, I would expect it to ultimately clear. If that clears, 1100 is next.
That's getting too far ahead of things. For now, the market held the gap down and closed green. 1060 is coming up thus please do not add too much more to the pot. Barring a miracle, this level will be a terror for a while for the bulls.
The part that should make the bulls take notice is how the financials have not participated lately yet the market has more than held its own. Many of those charts and ETF's have not looked good over the past few weeks and they have undeniably struggled. These charts are now unwinding their overbought oscillators and negative divergences. They may be ready for more upside sooner than later, although again I caution you all on getting too happy once we get to or very near 1060 S&P 500.
If the financials start getting a bid, it is likely they would be the group that in time takes us over S&P 500 1060. Without these stocks participating, it is unlikely that the market would be able to make the move over such a large price and volume gap such as 1060 is. Let's keep a very close eye on the action of the financials for more insight as to the markets future.
The action from the dollar or PowerShares DB US Dollar Index Bullish (UUP) tells a sad story about the state of the United States dollar. It is telling us that our money is devaluing away slowly but surely. A very nasty breakdown occurred on this when it broke a bear flag at the 23.25 level. The market continues to like this strange scenario and who are we as the players of this crazy game to argue with what the market likes or dislikes.
A strong dollar continues to coincide with a weak market and vice versa. Hard to root against our own currency but that seems to be what we need to do. Maybe a real clue about when this dream bull market dies will be when we see something interesting happen positively to the dollar that's just not known at this moment in time.
The action of the dollar, much as we'll need to watch the action in the financials, will be very telling about the future direction of this market. Strong support remains that gap at 1018. It really is a market of gaps,1018 being massive support and 1060 being massive resistance. Whichever breaks first will set the trend for weeks to follow. You don't want to get aggressively short while we're on a buy signal but you don't want to get nuts on the long side here between the two gaps and just in front of 1060.
The best way to play a market such as this is to go slow and buy weakness. We are still dealing with some negative divergences and overbought so please don't go wildly long. Long exposure is recommended of course. Just don't bet the farm please. Also I'm still avoiding shorting for now.
