Stock Market No Follow Through...Yet!

Stock-Markets / Stock Markets 2010 Feb 27, 2010 - 05:57 AM GMT

Yesterday we saw the market reverse beautifully off some very bad intraday lows. The Dow not far from being down 200 points. The late reversal and hollow bullish candle suggested today would be a very strong up day for the bulls. The futures were suggesting this would happen early on this morning until we got some very nasty news from that old dog, American International Group, Inc. (AIG). It said things were far worse than anticipated with losses in the billions. They also said, and this is what hurt the most, that they would need another strong infusion of cash from the Government if they were to survive. Ouch!!

The futures said see you later everyone. Amazing they held up as well as they did. We opened flat and spent the day trading on either side of the flat line. The feel-good stick printed yesterday showed zero follow through today. Disappointing for sure but not a death knells either. Just another day trading in the same old boring range of 1080/1115 with some stocks doing well and others not so well. Rotating about day after day. All in all, not a bad day but definitely somewhat of a disappointment for the bulls. All the market is doing is rotating about which tells us one important thing--NO ONE is in control of this market at the moment. It's all about the bears defending the top of the range and the bulls defending the bottom of it.

Gap downs are bought but no follow through to the up side the next day. Gap ups are shot down but not follow through by the bears either the very next day. In fact, each time one side defends it seems the next day is followed by Doji type days or days of nothing in terms of price action. Flat boring action. It's as if each side is exhausted from their previous day’s efforts to break things up or down and trying to defend it.

Volatility is leaving as the range is tight. The market seems to be spending an equal amount of time near the top and bottom of the range. When no one is in control, you have to pick strong risk reward plays to put your money in to but you also have to show patience in these plays as they meander all about. Just a very boring and difficult market that needs more time in terms of making up its mind which way she wants to break. 1080/1115 the numbers.

The one thing that stands out more than anything else is the way the oscillators are set up on the daily charts. Whether you're a bull or a bear, if you're honest with yourself, you can see how strong the MACD's have been in terms of holding up in this most recent run lower. Based purely on this one technical, you have to be more constructive on the future break of this market which should be higher. Not every MACD works out the way it seems it should on the face of things. However, this game like any other game, it’s all about probability.

It's far more likely we move higher but you have to be on guard for all possible outcomes. When MACD's hold up without even turning down a drop in the face of some good selling, you have to like the chances for the bulls in the coming weeks is about the best way I can say it. We've been long and are still long and most plays are working out well. However, you can't get them all right but we will continue to be proactive on the long side as long as the MACD's continue with this set up.

The banks and financials are looking pretty good and that's another positive for the market. Citigroup, Inc. (C) acted very today and has been for the last week or so along with JP Morgan Chase (JPM) and quite a few other banks and financials. Not to state the obvious but the market isn't going anywhere significant to the up side without the banks/financials participating. They are approaching breakout territory and may need yet another pullback but one of these days they look like they're just going to bust loose and make the move. No guarantee, of course, and we would need to see that move but if they break higher the market will follow and we'll finally put 1115 in the rear view mirror. It won't be easy but that's what it's going to take. We get the banks and financials rocking or the market drops back down towards the bottom of the range yet again.

Look folks, nothing is easy here. The market is having a tough time since it topped out at S&P 500 1151. It fell approximately 8% and has slowly grinded back up with the market going nowhere lately. I think any move up from here will be more in the grind mode but I do think we will move higher overall due mostly to the technicals I am looking at. So many stocks are set up bullish as are the major index charts. I won't fight what I'm seeing. We have plays out there. So far mostly good plays. Not perfect. Who is!! Making a few dollars overall in a very difficult tape. 1080/1115 is the range and whichever breaks first is what will take over. Still waiting for the break but I admittedly remain overall bullish.

Peace

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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