The market's internals today finished horrid, but slightly better than I described in the middle of trading today in my previous post. The calm and orderly nature of the selling is the worst scenario the bulls can get. Panic selling and chaos usually creates bottoms, whether short or long term. That didn't happen today. Not only that, but a late day rally in the final minutes pushed the indices off their lows. Again, this is not good for the bulls in the very short term. Because of this, I feel any rally this week will be short lived and quickly reversed and new lows made. The longer the panic and fear stays out of the market and the selloff stays this orderly, the more likely this market will continue much lower in the coming weeks with little rally relief.
Above is a daily S&P cash chart showing the break of the important 850 level which has held the market up several times in the past. The market has told us this is an important level. So today's strong break on weak internals and close beneath it tells us the market wants to go much lower. Also notice the MACD has shown weakness (red descending trendline) throughout the entire rally phase over the past weeks and is now rolling over to the downside. There is still plenty of room for the MACD to fall too, along with many other momentum indicators. This market is overall bearish. 740 will be broken in the S&P soon, and will probably trade well into the mid-600s by summer 2009!!
I'm still about 75% short overall.
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