Top Advisors Corner

Jack Steiman: Still Just A Handle

Jack Steiman

Jack Steiman


When the market sells off decently from the top intraday, it feels as if the big selling has finally taken hold and that the bears are finally making some progress.   Yet, in the end, nothing seems to ever kick in for the bears.     Monday was no exception.  We sold off the top and were down by as much as 12 points on the S&P 500, but recovered half of that by the close.

By the end Monday, nothing was all that bad in terms of the look of the charts technically.  On the daily charts all we can safely say is that the key indexes are in handles off the top.  Handles whipsaw you emotionally.   One day feels like a breakout with the next feeling like a breakdown is imminent.  Most of those days are head fakes emotionally. That's where trading problems arise, since we all know that we're due for a nasty time price-wise.  “Due” has been with us for months, and due hasn't happened yet. It can happen tomorrow, or it can happen in eight weeks. It can happen at any time, but waiting for it hasn't really worked out.


“Due,” in fact, has kept me from doing more!  I would liked to have been more aggressive the past two months, but the risk was so out of control from negative divergences to extreme froth levels, and, therefore, I just couldn't get up the nerve to be do more. So many plays set up that I simply didn't do, because of the fear factor. For the desire to be safe was stronger than the desire to be greedy.

With all that said, froth remains at extremes with those nasty divergences still existing on those seemingly useless weekly charts.  But I still can't get that reality out of my head. If you find good set-ups I wouldn't blame you for putting them out for yourselves. Just realize what you're buying into and, thus, keep good, tight stops!

When we get the new numbers on Wednesday, I would expect the overall bull-bear spread to be around 44%. Hopefully, I will be very off on this belief, but if price is following froth, that number is very realistic.

On top of that, and what worries me far more, is the reality that the bears may actually be down in the 12% zone, which we have seen in over 27 years. Not what the bulls want to see, at least one would think that. Again, who knows how rates at near 0% are affecting the ability of froth to hit this market hard to the down side. It scares me quite a bit when I think of these numbers, since anything over 35% on the spread is bearish in a normal market environment.  40% on the spread and 12% or so on the bears doesn't allow me to sleep well at night knowing I'm long. But hey, it hasn't hurt the market any. All it has caused is more whipsaw and a more difficult environment for sustainable up-side action. It surely hasn't killed it.

I look very forward to this number on Wednesday. It may show historical levels of a lack of bears. If nothing else, even if that can't hit the market, it is interesting.

Looking at the breakout and breakdown levels, on the S&P 500 the recent high is 2011, while the 20-day exponential moving average is key support at 1986. If we close decently above 2011, you're breaking out. Since froth is high you need to be aware of a possible failed breakout. If that occurs, you only want to sell if you lose the 20's at 1986. Basically, a drop more than 1%, which isn't bad, is your guide for either side of the coin. Above 2011 on a close is bullish, while a close below 1986 is short-term bearish.

Keep it simple. This will allow you to ignore the whipsaw action in the current handle when only those two levels mean anything to both sides. Let those levels be your guide as you continue to trade away.

Peace,

Jack

www.SwingTradeOnline.com

Jack Steiman is author of SwingTradeOnline.com, a live Trading Room of his swing trades and technical market analysis. Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the bottom of the bear market in mid-2002, the market top in October 2007, the late 2008's market crash (when he was 100% in cash), and the market bottom in March 2009. A free 15-day trial to Jack’s Trading Room is available on his website.