and the Stock Market took the one less travelled by…
Let’s forget about Greece, Facebook and the other hype going on in the newswires. Its time to look at the facts of what the market has accomplished so far on the downside. The reality is whether you are a bear or a bull on this market, so far it can be said that this decline has been somewhat limited and ‘contained’. It has been a market of ‘hopeful downside’. This has been my feeling through the duration of this decline while watching the tape. My sense of the decline is essentially ‘waiting in line’… you know when you are in line at the movies or at your local bank… just standing there impatiently waiting for the line to lighten up.
The problem with this type of market action is that it tends to be more corrective in nature instead of all out bearish and new bearish trend starting type action.
The action in the UUP US dollar ETF yesterday had me thinking we were on the verge of a big market rout (downside action). But looking at the reversal action today, the ability of RSI to hold ground and great a small bullish divergence and the MACD histogram ability to hold ground and open the door to more upside has me thinking this may actually still be some type of more meaningful bottom in the market now.
Flexibility is key here.
The reversal hammer candlestick in the sp500 was very powerful today and meaningful and should not be ignored. It could have important implications going forward.
We have still held Fibonacci support zones in the sp500 and the QQQ has still not even been able to manage a normal Wyckoff retest of the previous long supportive range. This statement about the QQQ is important because the QQQ is essentially saying that the bears are ‘not good enough’ to even get a fall back TEST of the long support range. Despite all the bearishness, they could not even bring it down to the REAL test zone and then see if the market can bounce from there. Instead we fell shy of it and now it appears already it wants to reverse topside.
I have to presume that this means strength for the market.
The other general issue regarding the macro picture is that time and time again we have heard about Greece and the rest of Europe since 2009. During each of those periods the USA stock markets have going into somewhat scary corrections, but each time the USA markets have also recovered and managed to trade much higher in the end.
So here we are once again in May 2012 with more Greece fears and one has to ask if this market will be able to shrug it off once again and head to new highs.
My long term charts indicating potential serious bearishness are not set in stone. The quarterly and yearly and monthly time frames still need to finish their end of period prints before one can make firm conclusions.
Honestly at this point I think we are at an important low in the market based on today’s action.
The downside volume today was also very weak and on a few ETFS actually created a bullish spring as we tapped under the previous low and then had volume shrink. We have also seen the 10 day moving average of the Put/Call Ratio skyrocket at the lows of this decline which is an important contrarian sign. So a case can be made that we are at an important bottom.
The issue of the UUP (US Dollar index) rising has been important but I am not sure we can seal the deal on saying the US Dollar is going to spike higher and cause the USA markets to collapse. The problem is one has to ask to what degree it has been rising. The current rise in the US Dollar, while important, has not been an extremely aggressive upward sprint. Instead it has been somewhat of a move within a trading range.
Gold did show an important reversal as well today.
The bottom line?
Be open to at least the possibility that this was a normal correction in a strong uptrend and that the market will at minimum move into a range bound state moving back up to the highs and then maybe back down again. But this could be a very important low if the reversal hammer of today holds and confirms.
Note the shaded region as being essentially an important supportive shelf. I think that is what the sp500 has identified now as valid support and now it wants to bust back topside again. How high and how far remains an open question. It is also still an open question whether the market could make it to new 52 week highs. But for now this looks like an important low based on today’s important reversal action.