S&P 500 - Feb -02, 2009

charts courtesy of stockcharts.com

Index overcame it opening gap and ended flat.

Overall, it was an uninspiring day. Volume contracted, and breadth was slightly negative

Of note, in the chart above, is the number of new lows, and weak Stochastics that some may regard as a swing failure. Stochastics are fast and, at times, volatile, so let's not get too excited about them. Let's se if they lead to more signals elsewhere

Nothing has really changed as far as internal wave structure is concerned

Notice how neatly the index bounced off the rising trend line. It is too clean to be anything but technical trading.

While S&P did not do much to write about, the DOW did something very interesting

It managed to undercut the low that it had set on January 23, and made a lower low in its confirmed downtrend.

I am not sure how others may take this, but I don’t feel good about it.

Let’s see what we are dealing with here.

We are in a bear market. I know some still call this a correction in an ongoing super secular bull or some such nonsense, but I deal with technicals and this is a bear by my technical measures.

We know there are sectors that are in a confirmed downtrend (Transport, Industrials, Financials, Materials, Consumers, etc).

We know there are major Indexes around the world that are in confirmed downtrends (Dow, S&P, DAX, Nikkei, Hang Seng, Shanghai, etc)

And, then, there are areas that are still holding on to their uptrends (Nasdaq, FTSE, TSX, Gold, Healthcare, etc)

This is a fragmented picture. I do not think it is a very healthy picture. Maybe the better sectors and indexes (not many of them left) pull the others up into rallies. Maybe the sickos infect the healthier ones and drag them down. It is a bear market and weighing the probabilities raises a flag for caution.

On the long side, we are at the mercy of the bulls who, so far, have been a weak and meek and badly beaten lot. On the short side, well, there we have the primary trend. In the meanwhile, we are stuck in a range.

I am going to stick to my game plan of trading small when there is a setup to trade. I used the brief period when S&P was positive to tidy up the meagre call position that I had established on Friday and reduce the cost.

Food for Thought: People seem to latch on to anything that seems to be bucking the carnage, herding into any pocket of strength that markets have to offer. Gold and gold stocks can be one example. Healthcare and education can be other examples. Just look at the chart of ESI. Or look at APOL. Was today’s performance of these two because of fundamentals of the companies? To each his own.