Gap And Go....Finally
Jack Steiman | Dec 11, 2014 12:23AM ET
The market has needed to sell for quite some time now as we have been grinding up with tiny candles for weeks upon weeks, which has allowed the bull-bear spread to get over 40% a few weeks back. Each week we grind up only made things more overbought on the daily, weekly, and monthly-index charts not to forget some of the nasty negative divergences that are out there. Tiny candles with high froth and overbought conditions usually means that the market is finding it harder and harder to find new bulls or to maintain the old ones in a fashion that says they're going to continue to buy more and more. There comes a topping point. I guess we're seeing that this week.
We saw overseas market mixed last night, but our futures could never find a bid. As the morning wore on premarket the futures started to slip slowly but gradually lower. A sign of what was to come. The market gapped lower and never got a real bid that was sustainable. All rally attempts sold. We finished near the lows. The way it should be when the market has the intention to create fear. I'm sure that message was hammered home to everyone today. Folks getting far more fearful. Proper medicine. So with today's close we now have our eyes focused on the big one or the 50-day exponential moving average, but more on that later on. For now we got some well needed selling. It's a start.
The financial stocks, which were leading this move up as they broke out of bullish bases, took some big hits today. Goldman Sachs Group Inc (NYSE:GS) actually closed fifty cents below its breakout of 192.50. A real shock as the move was a long time in the making. It received a nasty downgrade today, but instead of shaking it off it gave way at the close. Now, fifty cents below a breakout level when you're nearly a $200 stock isn't death, but it was a real shock to see it give way without too much of a fight late in the session.
Others were poor as well such as Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM). Breakouts that were a long time in the making had a few days in the sun but gave it up. We shall see if these leading stocks can find bottoming candles tomorrow and start a move back up. Not the best situation for the market bulls to see this occur so soon after breaking out. Is it a red flag for the whole market? We're about to find out. Following the financial world is critical to understanding where the market is likely to go short-term. Today can't make the bulls too happy, but the stories end has not be written yet. That coming at those 50's.
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So let's talk about those 50-day exponential moving averages. It is normal protocol for markets, when extended, to come back down and test their 50-day exponential moving averages. On the S&P 500 that level is only six points lower at 2020. 2020 is also the September high thus it is powerful double support. On the Nasdaq 100, there is more room to spare. The NASDAQ 100 closed at 4684. The 50's are at 4627 or slightly more than one percent away. Only when the S&P 500 and Nasdaq 100 both close below their 50's with force can we say the bears have taken over. The S&P 500 will have to lose that level first. It may be only an intraday breach with a hollow candle at the end of the day to save that level. We don't know.
We play what we see not what we think. A small breach below on a closing basis is not a breakdown. You want a forceful, preferably high volume close below. We are at the breaking point for the bulls on the S&P 500. It is always possible that we're entering a much deeper test lower. A correction to be more exact simply because of the massive froth we've seen for quite some time. If it does happen it's healthy, not a negative. It'll feel bad, but it's healthy big picture. Getting the bull-bear spread well below the 30% level would be great news, but we shall see what the market offers up here at the 50-day test on the S&P 500. We're at 36.7% on the spread now, but a nasty week can take off 5-8%, and get us below the 305 level in the blink of an eye. It gets more exciting and interesting from here. Keep it light.
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