After 1,200 points down on the Dow over six trading days, it made sense for the market to try and rally hard for a few days. After all, the daily charts were oversold with a 30 RSI, a number from which the indices have typically blasted off during sell-offs in this bull market.
Plus, the market got some good news out of China, which blasted up 2 percent overnight. Then came the jobs report, which was shockingly high. S&P 500 futures were already up, and jumped another 10 points on the news, as the market appeared ready for a big day.
We gapped up huge and that was it, downhill all the rest of the way. Nothing terrible, but the 30-point upswing went into the toilet. Surprising, to say the least, and a major change of trend to what the bulls have gotten used for nearly seven full years. There have been lots of changes lately that we're not used to in terms of this bull, and, thus, maybe we should all take notice. The market has been frustrating the bulls for over a year now, but it has done so by moving laterally. Now we're starting to trend down. The frustration after today has to be ramping higher for the bulls. This was their day, but it didn't materialize.
The S&P 500 is very close to the trendline at 1925. For 7 years, this up trend line on the weekly S&P 500 chart has been tested numerous times only to see the market launch higher. Will it be different this time? The S&P 500 closed at 1922, which is not a breakdown. However, this test is different than what we've seen in the past. More and more stocks are trading in bear mode by far. More and more sectors are broken. Moving averages are crossed badly, and those monthly charts have had a chance to flash deeper, negative divergences with each new high. None of this guarantees a strong move lower below this key trend line level of 1925. But the odds are at least far higher than we've seen before.
It's always about price and volume on the break of price that's so critical to the short- to mid-term direction of this market. Study the chart. Recognize the difference on both sides of that trend line. You would think the bulls would fight hard to keep it up. And they will, but there's only so much they can do if big money wants this market to go away. It's unusual to see big money not blast this market up with so much good news today, so maybe they're no longer interested in doing so. It is quite unusual to see this market lose 1925 on an intraday basis. That type of important support break usually, if not just about always, results in a large gap below. Will China afford the bears that opportunity this weekend? Maybe. Maybe not. Maybe it has to be something else no one sees, since so much attention is being paid to China now. We're going to find out soon enough folks. Next week is going to be more than interesting.
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 at www.SwingTradeOnline.com.
