Tuesday, March 8, 2011

Oil Spike Hits Market....

It was only a matter of time before oil hit this market with the price
of oil over $100 for this long. It has been trading well above $100
dollars per barrel for several days now with a spike near $107 per
barrel pre-market today. The market finally gave it up to some degree
on this spike, although not as much as one might reckon based on the
breakout technically in place.

The day started out not too terrible at all with slight gains, but it
didn't take long before the market started to head lower. The
promotion accelerated quite rapidly with the Nasdaq testing down and
breaching its 50-day exponential moving average intra-day. The Nasdaq
fell a instant 70 points from top to bottom in just a few small hours,
or nearly 3%, which shows you the intensity of the promotion. The S&P
500 held well above its 50-day exponential moving average all day, but
it, too, sold quite hard once things got vacant on the Nasdaq.

The Nasdaq often leads both ways, and today was no exclusion to that
rule as the S&P 500 tried hard to hold in the green, while the Nasdaq
was decently red. But in the end, the depth of the fall on the Nasdaq
took the rest of the market down with it. Oil has been holding on for
a while now, and yet the market has found a way to dance around this
terrible news for the economy. You really had to marvel what was
holding this market up, and to this day, all I can say about it is
either the market thinks it's a small lived blast up, or that the bull
market is just that powerful. My guess is a bit of both.

The price of oil controlled by overnight circumstances overseas. The
market doesn't seem to reckon this is a long-term conundrum to be
sure, although that doesn't mean it can't have small-term affects to
the down side, offering up a nice correction to unwind things down to
where you can buy far more aggressively. If oil stays up at high
prices, such as we're seeing now, the perception alone of what that
can do to our economy will take this market lower. The game of
psychology being as vital as real events that take place around the

It doesn't necessarily matter what the truth is, it's about the
perception, and this is what causes folks to hit the sell button. So
for now the market is captive to the price of oil on a
moment-to-moment basis. The longer we stay over $100 per barrel, the
more you'll hear negative talk about this countries future. And that
could keep the correction rocking on a while longer, which in truth,
would serve this market well.

One thing about corrections is the somewhat predictable nature of what
stocks will do from the perspective of how deeply they'll sell or not.
If you had a strong earnings report in this past quarter you won't
come close to seeing the types of losses that will be sustained from
the companies that reported terrible earnings in the past quarter.
Those are the stocks to avoid, and again, why you should permanently
keep a scoreboard of who did what. Bull trend or bear trend, it's
incredibly vital to know what took place so you can then choose wisely
whether or not to participate vacant forward from a long or small
perspective, depending on what type of market we're in.

In addition, you want to avoid the stocks most tied in to the reason
we're promotion off in the first place. The catalyst, if you will.
With oil the major catalyst, transportation stocks should really be
avoided at all costs. This is an ongoing process for every type of
market. Know what's causing what in either a bull or bear trend for
the small- term and respond accordingly. For now there's no of poorer
quality place to be than transports. If oil suddenly declines on world
events, there will be no better place to be. Simply adjust to the
moment's news.

The daily charts are doing some very excellent unwinding of their
recently overbought oscillators. It's a excellent start and would be
fantastic if they really went to oversold instead of just neutral. The
area that needs the most work is the weekly charts as they're just
coming out of overbought and want to see the major index chart RSI's
get down to the lower or mid 50's on those weekly charts. The lower
the better, especially on those key daily charts. How fantastic would
it be to finally get a test down to the 30 RSI level on those daily
index charts. Just for once, which would allow for a much more
aggressive long stance. With things where they are now, it's not
terrible to have some exposure, although it would be fantastic to just
about go all in but only if things really unwound down across the
board on those daily charts.

If they did, the weekly's would be unwound enough. If you're
overbought for too long it often takes a period of oversold to occur
before you rock back up. Conundrum is you don't want to get too cute
waiting so you let the 60-minute charts offer the right access, even
if we don't quite get really oversold on the daily charts. Any and all
unwinding is welcome on the daily charts folks. We're working our way
there but deeper promotion would be needed to hit where things would
align best.

If the S&P 500 loses 1294 then the Nasdaq will have already lost its
50-day exponential moving average with break down. That's what we need
to get things lower for some weeks to a couple of months. 2729 is the
number on the Nasdaq. With today's close we're just not through it
with any break down, thus, we need to get confirmation there first. If
we do, and it starts to run lower, then we can get the S&P 500 to
follow along with the Dow. If that takes place, this market could get
a sever test lower as the bears will become far more courageous having
seen all those key 50-day exponential moving averages go away.

It'll take a go below all the 50's across the board because on back
tests, the bears will come roaring in to take this puppy back down.
Having lost only the Nasdaq, they still won't get overly aggressive.
They want to see those 50's get taken out across the board. Then
they'll feel excellent about being small and not having to worry about
covering those small positions too promptly. So for now we watch and
learn about whether these levels will hold and keep things on the
light side for now.

Source: Fxstreet.com

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