S&P 500 Analysis:
Another day, another failure, but you are all used to that by now. Right? Hello? Look folks, we've seen this so many times over the past five months it shouldn't have a single adverse effect on you. Wash, rinse and repeat for so long it's off the charts. That said, we need to study how the market sold off today and ask ourselves if the selling that took place below the breakout level of 2119 to, let's call it, 2125 was really bearish. I would suggest it was not. The volume was light and the oscillators were leading, while price fell very little, meaning solid unwinding without a lot of price depreciation. It would be very bad for the bulls if price was leading lower with force while the oscillators stayed up there. No longer are we overbought, and no one should feel as if today's selling was anything bad in terms of price.
We were simply too overbought coming in to the day’s trading and needed to fall and unwind the right way, and that's what we did. Nothing bearish to be found, but that doesn't mean the market has to break out. Nothing is coming easily for the bulls, and clearly not so for the bears as we sit in the land of whipsaw to nowhere big picture. Short term we get a lot of head fakes, but in the end nothing of significance. It feels significant as we get close on both sides but in the end nothing of significance has occurred in nearly half a year. Choppy and boring, I think, would best describe it. So yes, we failed today, but it wasn't the type of failure that should completely deflate the hopes of the bulls. That's for another day. Well, maybe. We can laugh at it all by now, can't we? I hope so. The bulls have hope. We shall see.
It is too easy to get caught up in this market so I think there are a few ways to play if you must participate all the time or at least most of the time. Many of you come to the casino every day with the prospect of playing. 'Why else be here?' is often the attitude. I get it. I don't agree with it, but I definitely get it emotionally. So, if you're going to play, try playing when the short-term oscillators have unwound to close or at oversold conditions. If the market breaks out first then wait for the back test from overbought. Those are the two choices.
That said, with the constant failures off the top, you can find plenty of times to get in near oversold oscillators. Try not to chase strength, especially if that strength is occurring below the breakout level. The closer the breakout and the more you're overbought the more you should be thinking about cash, but, of course, do what feels right to you. I'm not saying buying strength can't work. It can, but the odds are clearly lower if you're playing that way over the past many, many months. Patience in an inpatient game is not an easy practice but if you can't practice it well you're probably practising being very frustrated and disappointed.
The market is still playing the game of rotation even though more and more big players are falling down in to either corrections of bear markets. We've lost so many and are losing more all the time. Leaders, such as LinkedIn Corporation (NYSE:LNKD), Priceline.com Incorporated (NASDAQ:PCLN), Baidu Inc (NASDAQ:BIDU), and many others are struggling instead of leading, but for now the financial stocks are holding up. Overbought, but holding up overall. Money in droves is still not leaving the market. When rotation stops we're in trouble from a bullish perspective, but, for now, that is occurring. You know the story. It's old and boring.
Let's start with a close over 2119, and then over 2125. Do it with force and we're in business for the next breakout. If we lose 2045 we're headed lower in all likelihood. Sadly, the one day at a time environment is still with us. Adapt or find trouble. It's your call.