Market Conditions: Another Bearish Day

Today was another bearish day in the market. The S&P 500 Index gave grave challenge to the 1171 support level before a flurry of late day short covering. (Short covering means that people who were betting that the market would fall covered their bets and converted paper profits into real money.) Short covering provides buying pressure which is why the market rose in the last hour of the trading day.

1171 on the Standard & Poors 500 Index is now the line in the sand. 1171 has been challenged twice. The third challenge will be the charm. 1171 will fail on the third challenge. When 1171 fails, we will witness the PLUNGE. For an example of what the PLUNGE might look like, see the early days in May of 2010 when the market breached the 1181 line in the sand. Within 3 days, the market had dropped 120 points. (I had puts at the time, so I was happy/smile.)

The untrained eye might watch the news this evening and see that the market closed @ 1182. What's so bad about that? The trained eye sees far more in the closing price. First, the close was less than the open @ 1183. Whenever the closing price is lower than the opening price, we know that selling pressure was greater than buying pressure. Second, the volume on this down day was greater than yesterday's volume. The famous investor, William O'Neil, has written that institutions leave a footprint when they start to sell. One footprint would be a "distribution day." Distribution days are down days on greater volume than the previous day. Distribution days lead to more selling over time. Finally, the market in the final hour of the trading day went up while the MACD histogram remained negative, the stochastic reading remained negative and falling out of overbought conditions, and the MACD line remained in a declining condition. These are negative divergences. They suggest that the rise at the end of the day was false and not sustainable.

To sum up, today was just another bearish day. Those hoping for higher prices have more to fear than those betting on lower prices ahead. That's just life. That's just the market.

Good evening!

Wink

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