Something we haven't seen in quite a long time is the market getting oversold on the short-term sixty-minute charts and staying that way, even when readings are in the teens or lower. In bull markets, it's very unusual to even get to oversold, let alone stay there. If you get near 40-50 RSI, the buyers come in with force. Today we were at 10, yes 10, and couldn't get any real sustainable buying. That’s a massive change of trend, and changes in trend should never be over looked. When we tested down to 2040, and then retested at 2044, we did not see this type of oversold condition for this long a period of time. Now we are, but be careful not to jump to conclusions about what it means.
While that behavior is bearish, and should send up red flags to traders on the long side, we still haven't broken thesis at S&P 500 2040 yet. Until it does, days like today are nothing more than a warning sign. They are not death sentences for the bulls yet. Be careful not to rush to judgment. I admit today's action is bearish in how different the indexes are behaving, but at the close we were still well above 2040, and, again, that should not be ignored. If there is a break down in price with some force, then we can say the process has completed itself in reversing from bullish to bearish behavior regarding price. The red flags are up. The onus is on the bears to make those red flags become a nightmare for the bulls. They haven't succeeded yet. The odds are increasing in their favor for sure, but we're not there yet.
When we look at a market, we can at times turn our attention to the leaders. The leader of all leaders is now Amazon.com Inc. (NASDAQ:AMZN), but one at the very top is Apple Inc. (NASDAQ:AAPL), and when AAPL is behaving badly, you need to take notice. AAPL is behaving as a market would it if were in a full blown bear. AAPL lost the 20- and 50-day exponential moving averages, both right near 127.00 after their earnings report. It printed a hopeful candle for the bulls when it went hollow that day, and actually closed basically on the highs. It was at roughly 125.00 at the close. The very next day it blasted up and went to those two critical moving averages. It sat and hovered on 127.00, only to see it fail with a long tail as the day went along. It closed on the lows, and, thus, went lower the very next day.
Today, day two after the failure, it gapped lower and stayed open with that gap all day long, closing near the lows and leaving a nasty wide open gap in its wake. Bearish behavior. To be blunt, bear market behavior and when AAPL is behaving this way you need to, at the very least, take notice and make sure you're aware of this. It's hard to imagine a market making good, sustainable upside moves when the leader of leaders is not doing well. Too many individual stocks along with many sectors are breaking down and trading below their 200-day exponential moving averages. Not good. The market is weakening, but again, still hasn't broken. That said, AAPL's behavior is troubling for the bulls.
The first test had three candles at that level. The last test printed 2044 on consecutive days. We are now heading back down. Will the third time be the charm? I'm more concerned, because the one sector that has not failed the market, the financials, printed a strong negative divergence at its last high on the daily chart, and has now begun to weaken. If the last of the best groups give way there will be very little to help the bulls keep the bears from testing 2040, once again, in the days and weeks ahead. If we break through with force on a triple bottom breakdown, the bulls are in deep trouble. 2020 gap would be next and then 1980.
For the very short-term, we are violently oversold on the short-term charts, but that's the best I can say for the bulls here. More and more events are taking place that are more bearish in nature. We take it day to day, with 2040 on the S&P 500 the only level we truly care about.