The Case For Bear Vs Bull Market

I wanted to post an email I sent out to my members last night, going over the case for a bull vs bear market.  Comments are welcome and appreciated!

What a yo yo couple of weeks it’s been with the market bouncing around in a fairly tight trading range.  The market doesn’t know what it wants to do up here and that makes it difficult for a trader to know what to do as well.  I still think the best strategy up here for most people is to move more to cash, lock in gains quickly if your playing momentum stocks and stick to dividend payers if you’re planning on holding for a longer time period.

The case could certainly be made on the bullish and the bearish side, but in my opinion when you make the case for both, you have to give the advantage to the bearish side up here.  Let’s a take a look at both.

The Bull Case

– Market still trading up around the highs of the year despite quite a bit of bad news (ie the quick recovery off Dubai debt concern)

– entering a month that is historically a bullish time for the market

– liquidity, liquidity, liquidity.. this could really go under the bullish case and bearish case (are we creating another bubble fueled by excessive risk?)

– the recession is over! (ok, I say that with some sarcasm, because I don’t truly believe we’re out of the woods and I get sick of hearing the argument that the market will continue to move higher because the coast is now clear.  It isn’t and most of the good news has been built into this market now)

– there must be a few more points to make the bullish case, but I’m not coming up with them.  Send me your best bullish case and I’ll have a little something for you. 

The Bear Case

I think we’re all aware of the economic concerns out there such as inflation (down the road), rising unemployment, BIG government, rising taxes, etc, so I’ll just discuss the technicals for the bear case

– trouble at key resistance levels around Dow 10500, Naz 2200 and S&P 1100

– S&P and Dow hitting big resistance of the downward trend line off the 2007 highs (I’ll draw out these charts at the blog soon)

– volume continues to diminish to the upside

– Dow, Naz, S&P back into overbought territory on the weekly charts

– small caps are broken as revealed by the break down in the Russell 2000

– US dollar stabilizing as it hits big support of 2008 lows (a rally could derail the market)

– the financials failed at key resistance today as revealed by the XLF (high volume reversal at 50 day moving average)

What do you think? Have I missed anything?  Can you make a stronger case for the bull side?  I’d like to hear your opinion and I’ll publish the best responses over at my blog. 

As for the action today, we got some hefty selling there in the last few minutes of trading ahead of the jobs number in the morning.  Is that move forecasting an awful jobs number in the morning?   We’ll find out.  The rumor this morning was the White House knows the report and unemployment ticked up.  The White House denied the rumor and the market rallied a bit.  We’ll get the truth in the morning. 

The market just remains in a tight range right now with two straight days of failed break out moves, but still with lots of support below.  I’ll be keeping a close eye on the resistance levels of the highs of today and the support levels of the 50 day moving averages – at Dow 10000, S&P 1080 and Nasdaq 2100.

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