Was Monday's selling bearish? Not at all. No heavy push negative on the daily oscillators. No big gap down that closed at or near the lows. Just overbought conditions getting unwound as they need to be.
A relief from the high readings for a day anyway, with solid unwinding on the 60-minute index charts and some decent unwinding on those key daily charts. A few weeks would be better, but we'll take a day's worth.
The market is selling some on the excuse of the horrible numbers on the Japan's GDP report Monday morning, which was expected to show recession, but was even worse than expected. They are in some real trouble. Their market actually recovered on the belief that QE is coming their way. The Fed Governors everywhere are expected to appease horrid conditions by simply printing dollars. It has become the normal way to respond to all problems. Print those dollars anywhere and everywhere. No worries about future consequences.
We all know that the oscillators tell you when price on a given stock or an entire sector is in bull mode or bear mode. However, sometimes those oscillators can stay overbought. If the situation is special, meaning a long-term base breakout, such as we've seen in the financials, or we have stocks that benefit from low oil, they can stay overbought for a long time -- and you don't want to get scared away.
On the other hand, sometimes oversold oscillators can stay oversold, and you don't want to be tempted to buy. Like the 22 RSI on oil. It's been below 30 RSI for a long time, which drew in longs, and they are hurting. The lesson here is stick with the strong and use any weakness to buy those areas, while avoiding the weak. Don't play hero and try to catch some type of bounce. Not worth the risk. Bear stocks can stay bearish for a very long time, even in an overall bull market.
2051 is the 20-day exponential moving average. There is also gap right there or 205.58 on the SPY. That area is the focus short term for the bulls and the bears to fight over for now. We came within a hair of testing those levels today, and may, yet, still test them, but the bears need a strong close below and preferable starting with a big gap down before they can feel better about things. Until that occurs the longs have the game in their hands.
Jack Steiman
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