{"id":3433,"date":"2010-11-17T04:28:27","date_gmt":"2010-11-17T09:28:27","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=3433"},"modified":"2010-11-17T04:28:27","modified_gmt":"2010-11-17T09:28:27","slug":"sellers-increase-pressure","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2010\/11\/17\/sellers-increase-pressure\/","title":{"rendered":"Sellers Increase the Pressure on the Market"},"content":{"rendered":"

After the stock market finally tumbled from overbought conditions<\/a>, I concluded that “…hope remains for bullish wishes, but all the warning signs are tilting comfort levels to the bears.” Bears are now making themselves feel right at home. On Tuesday, the S&P 500 lost 1.6% on higher than average volume, creating the kind of strong selling day I expected two days ago. Interestingly, Tuesday’s drop was nearly the mirror image of the big one-day surge that now looks more and more like a rally-ending exhaustion gap<\/a>.<\/p>\n


\n
\"Sellers<\/a>
Sellers try to take control<\/figcaption><\/figure>
\n<\/center>
\n<\/p>\n

Given selling volume was unremarkable over the previous three days of selling, the onus remains on the bears to crack support at the 50-day moving average (DMA) and then support at the 200DMA. Moreover, T2108<\/a>, the percentage of stocks trading above their respective 40 DMAs, has plunged all the way to 43%, close to the level the market reached at the August lows. This milestone means that a large number of stocks are suddenly right around the same support levels that encouraged buyers to step in with purchase orders in late August. So, overall, I think there is a high possibility that this sell-off will be relatively shallow and buyers will step up to “defend” the S&P 500’s 50DMA.<\/p>\n


\n
\"T2108<\/a>
T2108 plunges 29 percentage points in just 2 days<\/figcaption><\/figure>
\n<\/center>
\n<\/p>\n

Note that the market is not technically oversold until T2108 drops below 20%. However, the market has only penetrated oversold territory ONCE since the March, 2009 lows, and that time was just this past May<\/a>. (There was a “close call” in October, 2009).<\/p>\n

Next, to the extent dollar weakness delivers market strength these days (or at least the two have been willing dance partners), then the dollar index’s ability to slice easily through resistance at the 50DMA is another catalyst moving in favor of the bears. This move appears to make it all but certain that the dollar’s relief rally will at least carry it to the 200DMA as I am now expecting<\/a>. A prime factor moving the dollar index is the market’s seemingly unending cycle between ignorant bliss and panicked re-awakening toward the sovereign debt issues in Europe. I find myself wondering whether the Federal Reserve is so comfortable with its latest quantitative easing program because it anticipates a surge in demand for dollars to come out of the latest evolution of the crisis.<\/p>\n


\n
\"U.S.<\/a>
U.S. dollar slices right through resistance<\/figcaption><\/figure>
\n<\/center>
\n<\/p>\n

(See Califah Beach Pundit’s point that the “real broad dollar index” has reached its all-time low for the fourth time since 1973<\/a>. To me, this is one more reason to expect the dollar to bounce in the near-term.)<\/p>\n

Even more discouraging for the bulls: the breakout in the financials from a prolonged consolidation period has come to a quick and unceremonious end.<\/p>\n


\n
\"A<\/a>
A short-lived breakout for financials<\/figcaption><\/figure>
\n*All charts created using TeleChart:<\/strong> <\/a>
\n<\/center>
\n<\/p>\n

Trading gets a lot tougher here for longs and shorts, and investors will have to put on cloaks of patience. Upside now appears capped in the near-term by the overhang of motivated sellers who now find themselves “sucked in” by the “post-Fed” exhaustion gap in the first week of November (there could have also been a lot of short-covering). Near-term downside appears limited by the support levels shown above. Moreover, the Federal Reserve is now actively targeting asset prices<\/a> and attempting to goose stocks upward. In other words, ample opportunity and risk exist for both sides of the fence separating bulls from bears.<\/p>\n

Just as I unloaded a bunch of longs into the post-Fed buying<\/a>, I am now initiating positions and constructing a shopping list for this selling. I am particularly focused on solar companies<\/a> that reported impressive earnings with promising guidance. I am still scrambling to review last week’s deluge of reports and more are coming. I will report on my latest positions in another post; I also try to post trades on twitter with the “#120trade” hashtag. I should soon begin reloading on commodities, especially gold and silver – the technicals here remain fascinating, and I am eager to update my assessments after silver’s rally ended in a parabolic pop<\/a>. I already purchased USO (with a covered call).<\/p>\n

Finally, I am eagerly eying EWZ, the iShares MSCI Brazil Index Fund ETF, as it approaches September’s breakout<\/a> where I regrettably failed to trigger a buy. I assumed a fresh buying opportunity would appear, and it seems patience will pay off.<\/p>\n

Be careful out there!<\/p>\n

Full disclosure: long SSO puts, long shares and short call on USO, short EUR\/USD<\/p>\n","protected":false},"excerpt":{"rendered":"

After the stock market finally tumbled from overbought conditions, I concluded that “…hope remains for bullish wishes, but all the warning signs are tilting comfort levels to the bears.” Bears are now making themselves feel right at home. On Tuesday, the S&P 500 lost 1.6% on higher than average volume, creating the kind of strong … Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[62,21],"tags":[65,226,1597],"class_list":["post-3433","post","type-post","status-publish","format-standard","hentry","category-technical-analysis","category-u-s-dollar","tag-sp-500","tag-t2108","tag-technical-analysis"],"yoast_head":"\nSellers Increase the Pressure on the Market - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2010\/11\/17\/sellers-increase-pressure\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sellers Increase the Pressure on the Market - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"After the stock market finally tumbled from overbought conditions, I concluded that “…hope remains for bullish wishes, but all the warning signs are tilting comfort levels to the bears.” Bears are now making themselves feel right at home. 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