We are at a critical point right now because the market just closed at its latest important support level. Check it out below (the lower green line).
There is definitely a bull argument here, but at the same time, I have to respect the bearish argument more so because the major trend is down and the trend is your friend. I'll get to what a bull would tell you in a minute, but first I want to point out something Teeka and I were discussing this morning. All of the people that we know, that are not market professionals, that know we are market professionals (neighbors, circle of friends, etc.) have been asking both of us if we think it's time to jump back into the market. This is not a bullish sign. They are telling us they have all their money on the side, and they are ready to plunge right back in. That's a contrary indicator. When the market bottoms out, you will hear those same people telling me (not asking) that the market is probably gonna just keep going lower and they want no part of it.
Let's look at what happened today...
Below is a 5-day intraday chart. As you can see, the market sold off at the end of the day (today's intraday market action is highlighted in red on the right side). For most of the day, it looked somewhat hopeful for the bulls as the market climbed higher. But like Friday's market, the hopeful climb was met with a sharp end of day sell-off - never a bullish sign.
Also look at Thursday's action (green). If the S&P 500 closes below 840, it will likely be really bad for the market (unless you have bearish positions, like me and members of The Trend Rider to profit from). You can see on Thursday the market dipped down below that critical level, but then rallied back in a strong way. What was great about that rally (for bulls) is there was no real catalyst. Just bargain hunters.
Now for the bullish argument. ..
If you look at the NYSE chart below, you can see that after the initial sharp sell-off in early October, the market found a bottom, with a bearish reversal pattern (bullish hammer) and that happened on very strong volume. The upside volume was 50% stronger than the downside volume on the day prior.
You should also note that on the days the market sold off, the selling volume gradually declined which indicates the market moving lower, not due to heavy selling pressure, but due to lack of buyers (a sign that traders look for in a bottom.)
So the price volume action is what you would see in a bottom. But again, my indicators point to a lower market as of now. Below is a longer term chart (6-month) showing the strong upside volume along with the very important support level we are looking at.
Part of the reason for the weakness today was the fact that Citigroup announced plans to cut 52,000 jobs from its 352,000 workforce in order to cut costs. Below you can see the 9 major economic sectors in the S&P 500 and obviously Financials are the hardest hit with a 6.36% loss.
Compare that to the last 5 trading sessions and you can see Financials are still the hardest hit with Energy outperforming.
Oil futures were down 3.6% at $55.01 after OPEC cut 2009 demand forecast to 30.9 million barrels per day from 31.1 million. The reason for the cut was they said evidence suggested the global economy will be weaker than previously anticipated. That definitely didn't help today's attempted advance. The market is so fragile, if it hears one significant negative announcement (which is totally in the cards, obviously) it will drop fast. Hopefully if that happens, we will see the panic selling we typically find in a stock market bottom.
Japan officially fell into a recession for the first time since 2001 and that news was pretty much shrugged off (as it was announced over the weekend and the market didn't tank). Some people were talking about the fact that the group of twenty finance ministers, known as the G-20, but didn't produce anything that would benefit the global economy in any meaningful way. But don't listen to the idiot financial media as the G-20 meeting wasn't expected to produce anything big. (What on earth did they expect from the meeting. It's not a big deal - just media hype).
Finally we got some ugly corporate earnings announcements (even though the actual earnings weren't bad). Target reported earnings in-line with expectations but said they would suspend its share repurchase program because of the uncertain economic environment. That's not encouraging. It's like publicly saying they think the stock will drop further. Then Lowe's beat expectations but gave downside earnings guidance for the fourth quarter saying consumers will probably delay home improvement and big ticket purchases.
That's it folks. No "Always a bear market somewhere". It's more of a wait and see for now.
Chief Investment Officer
Technical Analysis Millionaire