Market Fools Them Again

Just when everything was set up for a big fall lower after last week's action, the market fools them again with a big gap up today that held for the most part. I can't blame them for thinking the market would fall hard today, especially with all the turmoil going on the Ukraine.
Personally, I thought the odds were against the market today. But that goes to show you that until you get the necessary technical breakdown below key support, you don't venture to the dark side too soon. It can cause unnecessary pain. We're not even close to that breakdown level, or the key 50-day exponential moving average on the S&P 500, currently at 1832. We got close after Friday's close, but the bears could not find the necessary follow through today with a big gap down, which would have put 1850 resistance in the rear view mirror.

The gap down would have tested those key 50's, and had the bears dancing, but it was not meant to be. Another failure on their part, but all hope is not lost for them. They still have massive negative divergences on those weekly charts to hang their hopes upon, not to mention a little bit on the sentiment side of things. So, while today did fool the masses, it was not a grand day for the bulls. They did what they needed to do, but they are facing some ugly technicals on those weekly charts, which should not be ignored by anyone who loves to be long only. If, and probably when, they kick in some day it will get very ugly for the bulls. But that has still not shown its face.

There are plenty of potential excuses to hit this market folks. If you study the daily charts, you can see any move higher will almost definitely bring about some nasty negative divergences. We all know the weekly divergences are terrible, with many monthly charts overbought to throw some icing on the cake. I know it seems as if the market can't and won't fall with any sustainable force, but be careful not to let your guard down. It's when you think it can't do something it usually does.

Divergences kick in when they want to, not on our time, but they are quite pronounced on those longer-term charts. One way or the other they will have to be worked off.
Lateral can do it, but it doesn't seem like the best thing to do since it would take so long to accomplish. A nasty correction would cure it a lot faster. That correction, however, will do its deed when it feels like it and not before, so again, be careful front running things. It can get you in a lot of trouble. There are global issues as well, of course, but when technicals set up badly on many time frames with bad divergences, relax a little bit. But again, avoid froth.

In the end, we all know two key levels. The old highs on the S&P 500 are at 1883, and the 50-day exponential moving average is at 1832. Whichever breaks first is likely the beginning of a more directional move. Anything in between is nonsense and noise. If you trade a lot use those two levels as your guide. The 50's do change slightly so keep up with that as well. We'd be best served with a sharp correction so as to unwind things, but there's no answers yet on what's on deck.

Keep it light between that key range. It'll go away soon enough.