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Stock Market Incredibly Resilient......Financials Finally Participate...

Stock-Markets / Stock Markets 2010 Nov 06, 2010 - 12:27 PM GMT

By: Jack_Steiman

Stock-Markets

What can I say about this market. It is resilient beyond words. The degree of overbought not mattering for the time being. We're more than a bit overbought here folks. It's at extremes. Many daily RSI's in the 80's. Everything 70 or higher. Stochastics are pushed near the top. The problem for selling is this is a buy the dip market that needs a catalyst to have more sustained selling. News that would stop the bulls from buying any and all dips. We certainly had our chances to find a strong catalyst for the week.


We had the ISM Report. We had the fed meeting on Wednesday. We had early week elections, and we had the critically important Jobs Report today. Any one of these events would have been the perfect catalyst to get the bears rocking in which would allow for these oscillators to unwind. The only problem was everything was exactly what the bullish doctor ordered. An increase for the ISM, 2% above the previous month. The economy showing a slow recovery. Slow doesn't matter to this market. It just wants to see recovery.

The fed promised to do whatever it takes to keep money pumping in to the system to keep job creation alive. Job creation well above expectations. Sorry bears, nothing there for you. Something will come in time but nothing there this week. So the market hangs tough. It needs to sell but the bulls want in, especially the masses who have missed most if not all of this rally off the lows. Amazing and interesting times.

The really big news this week is not any of those things discussed above. No, not at all. The big news this week is the behavior of those financial stocks, which have just exploded out of their bases. The KBW Bank Index (BKX) blasted off. Bank of America Corporation (BAC), Goldman Sachs (GS), Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM), just to mention a few, are back in the game.

This is the news the market needed for it to have any chance to move appreciably higher down the road. Without the financials this market would stop its rally. The financials haven't broken down during this market rally. They simply didn't participate. They needed to and now they have.

The breakout on huge confirming volume, and this is just what the market needed to start thinking about getting even sillier in the months ahead. They came close to breaking down intraday but never did so on a closing basis. These stocks were flagging, and could have easily given way to deeper selling, but the big money defended them. Now they're on an actual breakout, which is really good news for the bulls.

With two gap ups now in their patterns, most of the financials can now handle the normal selling from overbought that's bound to occur soon enough. These gaps tell me that weakness will be bought up. The bears can no longer claim they have a weak spot from which to attack. The semiconductors took off first and now the financials have followed, which is great news for the bulls who want to dream about higher market levels down the road.

The really big news from a fundamental perspective this week was the action from fed governor Bernanke. His actions were more than unusual considering the depth of what he's promising. He has told the world that he will inflate no matter what in order to keep the stock market moving higher. He's actually targeting the stock market and not Main Street. A real change in character of what you'd normally expect from a fed governor. He's pretty much said if you need a trillion, no problem. We'll start out in the high hundreds of billions and work our way in to the trillions if need be.

It's hard to bring a market down when so much liquidity is floating around out there. There are always pullbacks, of course, from other news and overbought conditions, but money is going to continually be flowing in, which should keep the market firm. A fed that promises the stock market good things usually delivers for at least a while longer. Whether you agree with his actions or not, you shouldn't fight it. Don't get emotional with it. Just understand what it may mean for equity prices and you should be fine.

All three major indexes have now made their full inverse head-and-shoulder measurements. The S&P 500 was the last one to the party, but they made it to 1220 after seemingly lagging behind for some time. This sector, thanks to the financials, couldn't find a bid the same way the Dow and Nasdaq did. The financials found their bid and the S&P 500 made it to 1220 (1228) thus far. Normally, what takes place is a long period of consolidation. It takes a lot of energy to make these measurements, which you can see in the overbought oscillators on the daily charts.

It could take weeks, if not months, in most normal markets for the market to start heading higher again. There are some very different and strange circumstances now associated with this particular market thanks to fed Bernanke, but you have to respect the likely normal behavior that takes place once the measurements have been made. We must take things a drop slower here but still look for appropriate set-ups in good bases that have properly unwound. That search is ongoing at all times I can promise you that.

Things feel great but don't lose sight of the overbought nature of this market folks. Go nice and slow. Be appropriate.

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.

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