The Stock Market Bears Fail Again to Break the SP500 Down

sp50020100216

The stock market bears failed once again to deliver on persistent bearish follow through out of the potential bear flag and persistent down trend.  Not only did they fail in that regard, but they also failed to evade a bullish daily MACD buy signal and they failed to break the market to a new low range ( I am referring to the low ranges shown by the red horizontal dotted lines).

The fact that during the entire 3 week decline the market failed to break to a lower low by definition still characterizes the market trend as being in an uptrend despite the previous 3 week decline. Albeit it is a much more modest uptrend, but uptrend it is.

It is starting to look like the 1929 scenario is wrong.  The 1975 bear scenario may also be a no go at this point as well.  That would leave the 2004 sloppy swing trading range corrective scenario which is the one I labeled scenario number 3.

So this could mean the SP500 wants to trade back up to 1130, and then start another corrective leg down again, breaking the 1050 range but only slightly to perhaps 1030 range.  And then swing back up again within the large swing trading range.

It is way too early to tell if this large swing trading range is going to have a slight upward slant or a slight downward slant.  But the bottom line is that this type of trading range is in my opinion very difficult to trade and ought to be quite frustrating to say the least.

If I am correct that we are embarking on a large frustrating swing trading range, then by definition it describes a rotational market where you have rolling corrections in some stocks and super duper breakouts in other stocks.  So selectivity is key.

Incidentally I am going to switch focus going forward and see if I can find good buy setups in individual stocks.  Just focusing on this sloppy swing trading range in the indices can be really tricky.  Rather I think focusing on the strongest sector stocks and good setups is the way to go for now.

Perhaps I am pre judging the market a bit early, but I would rather make an early judgment call now rather than weeks later after frustrating market action.

Those who are heavily biased in the camp of a thick deflation, a swift market mini crash, followed by a break to the March 2009 lows ought to be very careful in my opinion.  Why?  Because that type of psychological expectation against a backdrop of a sloppy multi month swing trading range would be very difficult to bear.

The rally today was on very weak volume relative to the very heavy decline volume trend we saw the previous 4 weeks.  So that seems consistent with the idea that this new leg up will not be a significant new uptrend, but rather a swing trading range uptrend.

The gold market also failed to break down today and broke out of a downtrend channel on robust volume.  So that suggests the inflationary scenario is winning out once again.

Posted in Market Timing, SP500
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