The bears can finally celebrate a day for themselves. It has been rare, although the market has been basically whipsawing about quite some time as those bears have been fighting a bit harder recently. As of Monday evening they deserve their little party. They didn't allow the bulls to fill the gap down, which led to a gap-and-run day for the most part on Monday. It wasn't straight down with force, but the bulls rarely made a move to get things on their side. Whenever the market rallied a bit, the bears said “not today, boys and girls! Not today!”
Gap-and-run can change psychology, and on Monday the bears did just that. You could feel the bulls giving up as the day went along. A rare time when things weren't reversed back up after an attempt to sell. The game has been, and always will be, about psychology. Fear is harder than greed, and requires mental energy. The bulls don't want to use their brains. They want to simply follow the herd and let things rise. They're used to that. When things change you know they're feeling the heat. Greed can change to fear in a day. We shall see if that formula starts to take hold.
It will if the bears can finally eradicate those key 50-day exponential moving averages. The loss of the 50’s are all that matter to both the bulls and the bears. In bull markets you worry only when that level is removed. The 20's are important, but since the 20's are above the 50's in a bull market, it's not unusual to back test from the top of those critical 50's of support. So only when the 50's are gone do you make the connection that a real selling episode is upon us. Not a moment before. Then you have to back test over time, and if that back test fails, then you know the bull is over for some time to come. Lose the 50's, back test them, and then back down and you're golden if you're a bear.
So the levels to watch are 1977 on the S&P 500 and 4493 on the S&P 500 and Nasdaq, respectively. Markets can look very ugly when they're selling off the top and coming down for 50-day tests. It can feel like a bear market from above the 50's, yet it's not. So please don't get too bearish too early on in the game. We only know that Monday was a down day in a still existing bullish handle. That's all we know for sure.
Peace,
Jack
