S&P 500 1950-2030 Now The Short-Term Range
Jack Steiman | Oct 15, 2015 01:10AM ET
It's normal for the bulls to start coming back in and the bears to start backing off a bit when the market has trouble falling for a few weeks. Like I always say, fear requires action, no matter what side of the trade you're in. If the market is going up, you'll see the bears run out, and if the market is going down, you'll see the bulls head for the hills. We got down to a reading of a bit over minus 10%, and then went up to minus 4%, but now we're positive 5%. It’s still an excellent number for the bulls. Not as good as it had been, but when you reach minus double digits, the pessimism is really extreme, so some type of market bounce pretty much had to occur. It has and now we're beginning to unwind, but make sure you recognize that a positive +5% is still an excellent number for the bulls.
It wasn't too long ago we spent nearly two years over 30%, with approximately a quarter of that time over 40%, which is really extreme. We went as high as 46%. Off the charts bullishness. We would have to get well over 20% for the bulls to start to have to worry a bit and if we ever got to 20%, the market would likely be at new highs. The bottom line for the moment is that there are enough bears and shorts out there that if the market got the right news as a catalyst, the market would have the opportunity to blast higher. No guarantee we'll get that type of news as, thus far, the bad news globally continues on the economic front, and we also haven't had any special earnings reports to get folks excited. Do keep in mind that good news can come from out of the blue when no one expects it. There's always hope. You don't play on hope, but the possibility exists for a very powerful rally based on the number of shorts out there. That said, no catalyst probably equates to no big rally. Let things unfold and we'll know more.
More and more companies are putting themselves out there for sale. Today we saw SanDisk Corp. (O:SNDK) do it. Last week EMC Corporation (N:EMC). The news makes the stocks go higher. The bigger picture news is not good. Companies do this when they see things going south in the global economy. When the outlook for the future gets dark, more and more will look to unload their businesses in an attempt to get what they can before their numbers go in the tank. Seeing extremely large companies making a habit of this is troubling, to say the least. If things were looking good, they wouldn't even think of doing that. It makes you wonder who's next, and the negative message this is sending to traders everywhere.
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In the good old massive froth days, no one had to put themselves out there for sale as folks everywhere came looking to gobble up whoever they could get their hands on. Not only that, the dollars involved were as insane as the market froth itself. Companies would over pay, and not think twice about it. “What the heck,” they said, “we have all this extra cash and with the economy booming, lets just go in and get who we can as fast as we can before someone else enters the picture.” Now no one wants to buy anyone else. Sure, some deals are out there, but not the real big ones, and definitely not at the level of over paying we saw years back. Those days are over. It makes you wonder why deals are less in nature when everyone knows it wouldn't cost as much. It tells you things aren't going in the right direction, nor do folks see it going in the right direction any time soon.
S&P 500 1950 to 2030 is now the range for the short-term. Those are literally the only numbers that matter when understanding what's next. If the market were to lose 1950 on a closing basis, or massive gap, and moving average support, then the market would be in very deep trouble. On the other hand, if we can get some good news, and get the bears to cover their shorts, it would carry us over the 200-day exponential-moving average, and cause even further short covering. The bears would be feeling a lot of pain in the short-term. Of course, these are all on a closing basis, and with a little bit of force behind the move. A close at 1945 or 2035 wouldn't give me much confidence, but if we get at least a half a percent to one percent, then I'd feel much better about the message being sent. In between 1950 and 2030 is just noise. A very difficult, four-percent range of activity.
Back and forth with no real direction. Just back and forth meandering. We're somewhat used to that by now, but that doesn't make playing the range any easier. Simply, if you must short, or go long, use the oversold, or overbought RSIs as your guide. The market remains extremely difficult, with no end in sight. Just the usual day to day movement based on news from overseas or something here at home from the Fed or from economic news. You should not be getting aggressive. Do what feels right to you, of course, but if you're buying, using weakness would seem the best strategy. If you're shorting, using strength would seem right. Nice and light is truly the easiest on the soul.
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