This right now is an EXTREMELY critical time for the market and I'll explain why so pay attention. On Thursday of last week we made a triple top breakout on the SP 500 above 1947. A full candle day above that key level as we closed on the highs. The key was to see follow through the very next day, Friday. We got just that.
A nice follow through early in the day but we got overbought. Overbought can stay that way but not this time as we fell back and closed at 1948. One tail up thus not the best action for the bulls given proximity to our Weekly 1,950-60 neckline resistance area seen above. We came in to today no longer overbought so no more excuses. We started out slightly red but blasted higher as the morning went along. halfway through the afternoon the fun stopped on the up side. We started slowly but gradually pulling back again and fired a long tail for the second straight day which included a close below 1947. Not far below at all thus there's still hope for the bulls but a second long tail on consecutive days after breaking out. Not celebratory action for the bulls. Not hopeless but not a celebration. It keeps the near term in question. The bears can't feel secure. They have prevented further upside after the false breakout but have done nothing in terms of putting the bulls away. That's still a big gap down and go away from being a reality and until we get that type of action both sides are still alive. Try not to read too much in to this failure. Not yet. It's really important for the bears to do now what the bulls had to do but couldn't. They broke it out but didn't follow through. The bears have prevented the breakout for two days in a row but now they need a follow through. Neither side is showing much in terms of domination so we still have an unwritten short term picture. Following through these days isn't exactly on anyone's top priority list it seems. Someone will win out but the story is still being written. Empty pages to fill before we know what's next. The bears can breathe a sigh of relief but nothing more. Now it's their turn to be clutch and we all know how clutch they've been. Doesn't exactly make you feel good to see them up at the plate with the game on the line. they have their chance now. Will they seize the moment? We'll know soon enough.
So now we focus on the Ism manufacturing report out thirty minutes in to the trading day tomorrow. If today's Chicago Pmi is accurate it won't be pretty. A number supposed to be close to 52 came in at 47.6. A nasty contraction for sure and completely unexpected. If the whole country saw this type of contraction then the number tomorrow will surely be well below the 50 area which is where the break even number is. The market is only expecting a number in the 48's which shows that things aren't moving along very well. If by some chance we get a number better than expected then today's failure above 1947 will be a thing of the past. Anything still goes here. The market hasn't been selling bad news very much these days. Just last night China announced the loss of another half percent from their reserves. A country headed for disaster if that doesn't stop soon. Their market tanked and so did everyone else's. Well, we tried to fall hard but wouldn't have anything to do with it. The Sp down twenty points last night. All recovered by this morning. When the Chicago Pmi came out the market yawned. However, we did finally sell decently hard late. If the number is really bad tomorrow it would be interesting to see how the market responds. Is bad news still bad news? Does it matter? This market is so fairy tale. Again, only if the bears can create a large gap down that runs lower can we say the breakout failed. Until then keep an open mind and a tight wallet.
Folks, this is a very tough and complicated market that begs for lots of cash. Don't get aggressive as the market meanders about. Both sides have an opportunity here. The bulls looked strong but two tails at the breakout isn't good action. After doing well on a couple of trades we're back into a 100% cash stance. The banks and biotechnology sectors are miserable to say the least. They need to firm and show strength. They're not. At least for now. Banks aren't happy about all the global bad news on the economic front. Bad for higher rates. Banks want higher rates. They're not in the sweet spot right now. Keep an open mind but recognize this market is a nightmare for traders. Cash, most of the time, is the way to be playing.
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Jack Steiman
Robert New
