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Friday, July 2, 2010

Bear Market....Are We There Yet?

While today's NFP numbers were bad, they weren't much worse than expected, and the market did not crater on the news. In fact it looked like we were going to have another last minute ramp job, the SPX gaining over 10 points in half an hour, but gave half of it back in the last few minutes. Any strength is being sold into, but the areas below 1025 is bringing in some buyers. We are now in a micro range of 1010 to 1040, with diminishing volume, and oversold conditions. We could get a pretty good bounce from here, but I've been saying tht for a few days now and it hasn't happened. We are probably a day away from the death cross on the exponential moving averages and less than a week away on the simple averages, which, b whatever metric we use to judge it, would confirm a bear market.

The weekly charts are now showing a signicant change for the first time in a while. It is becoming clear that we are in a range bounded by last June's high, about 950, and this January's high, 1150, putting 1050 dead center and making that the "bull/bear" line in the sand. The death cross on the 10 week and 40 week moving averages is a much strongr indicator than the daily everages, and it looks like next week's charts will see them crossed.We also confirmed the head and shoulders on a weekly pattern, much stronger than a daly confirmation, and it looks like a test of 950 is inevitable.

The Nasdaq appears to have much the same pattern, just slightly stronger. Stochastics gave us a whip saw and are headed down again, and MACD is resuming it's free fall, so we probably have a ways to go here before really getting oversold. Again,I'm looking for a retes of the June 2009 high.

The Dow industrials have also confirmed a head and shoulders, the neckline of which almost perfectly coincided with the mipoint of the June-January range. In hindsight, it's quite amazing how these patterns become so obvious after they are completed.

The Dow transports have not confirmed the break of the midpoint, but at the reate they are dropping, should do so early next week. However, they could also give a pretty good bounce off that midpoint. Until these confirm the break, I wouldn's want to be short here.

By the "20% drop" rule for bear markets, the Russell 2000 was first to enter a bear market, but as we have seen repeatedly, this leads both up and down, so I take percentage drops here with a grain of salt. Of more importance to me is it;s position in the "macro" range, and it is still in the upper half. It also is farther away from a death cross, so on a relative basis it is stronger, depite the bigger percentage drop.

Just as I let the bonehead economists argue about whether we are going into another recession or not, or whether we actually came out of the first on or not, I will let the bonehead technicians argue about whether we are in a bear market or not. As Yoda O'Neil himself might say, let the market tell you all you need to know.

The new hgihs update mmight be a little later than usual.

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