Thursday, March 3, 2011

Trading Between The 20 and 50 Daily EMA's.....

And that's all that is vacant on. Nothing more and nothing less.
Nothing bearish at this point in time until the bears can remove 2722
on the Nasdaq and 1290 on the S&P 500. Those are the respective 50-day
exponential moving averages. The bears have made one excellent step in
terms of the huge gap down off the Doji topping candle but have yet to
follow through. This is classic action within a bull market. The bears
make some headway but never seem to be able to follow through. It
doesn't matter what type of terrible news hits the market. All that
matters is that we're in a bull market, and in bull markets, terrible
news gets rejected with the markets finding a way to hold up against
all odds. The bears have to be very frustrated at this moment in time
because today was their opportunity. Today was their day. Oil went to
$102 per barrel. The market did nothing but pull back off the highs.
No plunge. No huge go lower. One would have expected that to happen,
but it just didn't. Bull market action.

You get the feeling the bears just gave up today after the go down
that didn't follow through. Who can blame them really. Not me for one.
If I was a bear I would likely walk away as well. Why bother lynching
in with shorts when the worst possible news won't take this market
down! So we know the index charts have lost their 20-day exponential
moving averages but are bouncing a bit above their 50-day exponential
moving averages. Stuck between the two moving averages for now while
it makes up its mind about where it wants to go. That's all we have
for now. Stuck between moving averages, but that's not terrible news.
It allows us to sit back and learn about what's coming. Lots to learn
over the next day or two.

Now let's go further than the frustration the bears are feeling. Is
all lost for the bears? Not at all. Poor action in the transports,
iShares Dow Jones Transportation Average (IYT), gives them real hope.
The cost of oil is killing that sector, which is now trading below its
50-day exponential moving average. If the transports continue to trade
poorly it's likely the rest of the market will follow as so many areas
of the market are dependent on the action from those transport stocks.
There are also many leading stocks now trading below their 50-day
exponential moving averages from all areas of this market.

This tells me things won't be simple for too much upside small-term as
things settle out.
 The price of oil is a real headache for this market. No one will
argue with that. Even our frothy leader, Mr. Bernanke, said as much
today as he was language about the condition of our economy. He said
that oil must not stay at these levels for too long or it will drag
down the consumer, and thus, the economy, and, of course, that would
be devastating for stocks. Hard to argue that we would not hold up too
well with oil at 100$, or more, for a very prolonged period of time.
The bears have some possibilities here small-term, and thus, the
reason why this market is still unclear overall.

When you look at the individual sector daily charts, you can see the
lines in the sand for both sides. In most cases, the bears have the
20-day exponential moving averages above current price along with that
huge gap down from the top the other day. When looking down at current
price, we see the bulls have the 50-day exponential moving average as
support along with gaps just above that price. Each side with two
weapons of price on their sides. Gaps as one and a moving average as
the other. Talk about a stand off. This is really what's making things
so complicated for anyone who's playing too much. It's making lots of
whipsaw. Whipsaw is emotional, thus, the more you play in this type of
environment the more likely you are to make terrible exiting

Also, because things are so unclear, you want to wait and make sure
you have a handle on where we are headed for the small-term, and that,
too, isn't exactly to grasp. The charts say a modest more waiting
before getting aggressive. To small, you'd have to see a 50-day
exponential moving average breakdown and back test on weak
oscillators. To go aggressively long, you'd need to see that upper gap
start to get taken out. Keep it simple. Wait for more insight to come

Fascinating times for sure folks. Some bearish small-term signals and
some bullish as well. The action today wasn't fantastic to be sure.
Didn't retrace too much of yesterday's losses, but we did hold on to
some gains in the face of terrible action in the world of oil prices.
As we all know by now, there are times to be aggressive and there are
times to be less so, and this is beyond doubt a less so time. It
doesn't mean you should have any exposure. It just means you shouldn't
have too much and get caught up emotionally.
Equal triangles are very hard at best so be aware of that. Lots of
whipsaw means things remain unclear, and so we should adapt to that
until things get far more obvious. Sometimes that takes more time than
we'd like, but safety first at all times. 


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