Stock Market Acting Better...

Stock-Markets / Stock Markets 2010 Sep 09, 2010 - 01:47 AM GMT

I don't think anyone would argue with that reality. It's not great, and it's clearly not on breakout, but it is acting better even though the masses still think the action isn't worth playing. The economic news isn't great, and we sure do hear enough bearish talk day to day when watching the news station. The truth is, however, that the market is holding up extremely well despite the negativity. Of course, that's one of the main reasons it is holding up. Just too many bears at this point in time. More on that in a bit.

Bottom line here is the market is trying to ignore some short-term negative divergences and make the breakout above trend line at 1105. Let's call it 1105 and not 1110. You know markets are strong when you see very little in terms of downside action, even when things don't look great on the short-term charts. It may just be head down time for the market and that it will ignore the short-term bearish signals as the daily charts fully take control of the overall action.

With the market so close to major resistance at 1105, it's usually a gap up that makes huge resistance become support. It can happen without a gap, but a trend line such as this usually will need a gap up and out that traps the shorts. They have to cover once it gaps above, and the move up is on, whether there are some poor divergences short-term or not.

I am not sure what news is out there that can get us to gap up, but overseas charts aren't bad, and thus, it could happen simply with good action in China and Europe. Get our futures moving up, and get those shorts to get nervous and cover pre-market, pushing our futures above the resistance headache dead ahead. It could also be some statement from Fed Bernanke or President Obama. No way to know, but you get the feeling the market is anticipating something based on the current behavior it's showing.

Good to see those banks get a bid today, and even more importantly, after gapping down on downgrades, the semis did come back late in the day. On top of that, the daily chart on the Semiconductor HOLDRs (SMH) or ETF of those semis, is showing some positive divergences at the bottom. That gives them hope that a turn around is coming even though it feels like that's never going to happen.
It's understandable sentiment there is really poor, but that's probably going to be the catalyst to get them going higher when everyone thinks death is near. If the banks start to participate, and the semis can catch on their divergences, we could see the move take place in short order above S&P 500 1105. No guarantee as they've lagged, but there is some hope technically.

The sentiment figures came in, and although it added some bullish action, the overall picture remains far more bearish in terms of emotions. Only a 1.1% spread of more bulls to bears. 33.3% to 32.2%. These types of figures have historically kept markets from falling too hard for too long. Never a guarantee as they can get inverted by 205 at times in the very worst of situations, but for now you have to like, if you're a bit more bullish, that the sentiment is decidedly bearish in nature. A real plus for the bulls.

If we can take out S&P 500 1105, there really isn't much until we get to S&P 500 1131, where there's the next wall to climb. Good support comes in at 1085 up to 1093. We take things one step at a time, of course, but the overall action is more bullish these days as we trade just under the trend line breakout at 1105.

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 constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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