Market Sentiment (Stocks on NYSE, NASDAQ, AMEX)

May 29, 2012, 3:37 a.m. EDT

This bear market rally is living on borrowed time

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About Alexander Elder & Kerry Lovvorn

Dr. Alexander Elder is a private trader and a teacher of traders, based in New York City. He is the author of several international best-sellers, including "Trading for a Living" (1996) and "Come into My Trading Room" (Barron’s 2002 Book of the Year). Dr. Elder runs world-famous Traders’ Camps and is the founder of, a Web site for traders.

Kerry Lovvorn is a trader and a trading coach, whose work has been featured in several books. He teaches advanced trading classes and is a co-author of an e-book "The New High – New Low Index." Kerry is a co-director of, responsible for the nightly market analysis and a trading plan for the following day.

Together, Dr. Alexander Elder and Kerry Lovvorn run SpikeTrade – a unique club where serious traders compete for prizes and share ideas. They can be reached at

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By Dr. Alexander Elder and Kerry Lovvorn

The height of every price bar reflects the emotional temperature of the market during that bar. The current pattern marks a temporary pause in the bearish trend.

First, a friendly comment. In response to readers' messages that the charts on this site were too small, we've added a link underneath every chart that will take you to a page where you can view that chart in full size.

Please remember, we're market technicians: Instead of tracking book values, P/E ratios and such, we look directly at current market action. We trade current reality rather than fundamental reports, which may or may not translate into prices.

Click here for larger version of this chart.

The height of every price bar reflects the degree of emotion of the market crowd during that bar. It varies between markets, but within any given market we can compare the height of price bars.

This daily chart of the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.53%  shows what a steady bullish trend looks like — that's when the emotions are pretty stable, as they were in February (green box). This kind of a steady rise can go on for months, as reflected in our first post in this section "Amazon - a bullish stock in a bullish market".

Short-covering rallies, on the other hand, tend to be explosive but brief. Weak short-sellers, caught on the wrong side of the market, dash for the exits. Their panicky short-covering — 'get me outta here!' — raises the emotional temperature of the crowd, creating very tall bars. Such panicky episodes are marked by red boxes on this chart — and the latest one appears to be coming to an end right now. Once panicky shorts have been blown out and no new buying has materialized, the decline can resume.

Click here for larger version of this chart.

Our technical indicators confirm a bearish view. A slow trend-following moving average, marked by an orange line in the top pane, is in a steady decline, while prices are hovering just below the value zone between the two moving averages.

Moving average convergence-divergence (MACD) has traced a lower bottom last week than at its previous low in April, confirming the power of bears. The sensitive volume-based Force Index has been trending lower all of last week, even as prices tried to rally — another bearish signal.

A week ago we wrote here "Expect to see Dow 11,000 before Dow 14,000." Our ongoing analysis of the market confirms that view. We continue to publish daily updates at our website

-68.51 -1.53%
Volume: 2.10B
Jan. 21, 2022 3:03p

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