Stock Market Flat Day...Solid Action Continues...

Stock-Markets / Stock Markets 2010 Sep 28, 2010 - 04:04 AM GMT

We get overbought and we start to struggle a bit. Most of the selling continues to be basically lateral. This overall lateral action allows things to unwind just enough to where we can then go higher once again. We're not getting oversold. We simply unwind back to mostly neutral levels and then the slow but steady buying starts in once again. That has been the pattern for a while now. As long as that continues, and I don't see any reason why it won't right now, you have to be a buyer of stocks on weak days, especially if the selling is contained by S&P 500 1131. 1131 was taken over by the bulls, and after one day back below, it popped right back and continues to trade above, thus, that's now become some very strong support for the bulls to play off of. The longer a big support, or resistance, level holds once taken over, the more powerful it becomes as big money sets up shop at those levels waiting for their buy or sell moment.

Now, if we look at those 60-minute charts, it does suggest some selling is needed and would be best. They are elevated and extended over time, thus, it really would help to get some selling to set up better buying opportunities near-term. This does open the door to some possible selling below 1131 on the S&P 500, which I just talked about as being very strong support. The bulls will definitely work hard to protect this level, but if the market oscillators haven't sold off hard enough, it is possible we will see yet another breach of this level. But I would suspect it to be a temporary breach. 1113 gap would be next huge support. It'll be interesting to see if the bulls can find a way to hold the bears as we approach 1131, if we actually do get that low. With the daily charts overbought on some of the indexes this adds to the possibility that 1131 will get a good workout.

The other factor leading to the need for some selling is the high pole too many leaders are on. So many stocks have not had a decent pullback for too long a period of time. RSI's, MACD's and stochastic's have stayed wildly overbought and that just can't go on forever. It's not hard to find a stock up on a high pole. Every sector has them. At the very least these stocks need a lateral consolidation with some mild selling. At most, some of these need a real selling episode to unwind the oscillators deep enough to set up more buying. Hard to imagine too much more buying in these high pole stocks until they sell at least some over the coming days and weeks. The longer these hold up short-term the deeper the selling will be medium-term. The sooner they at least pull back some, the better it will be for the stocks down the road.

That long-term down trend line at S&P 500 1160 won't be easy for the bulls short-term. If they can eventually work the market through this long-term down trend line it opens the door to much higher levels, and one could say a bull market. That's for another time, of course. 1131 down to 1113/1110 is key support that should not be broken, if indeed this up trend wants to continue. I don't think we'll go that low or break it, but you always have to leave the door open to all possibilities. Anything can happen in this game.

One last thing. Everyone is talking about the low volume throughout the past many months. I believe it's due directly to the flash crash where the little player has lost total confidence. Too many bear markets over the past decade, and then an intra-day thousand point move down, has really caused a severe loss of belief in this game called the stock market. Many are gone now forever. Only a very few will come back over time. I see it in our business as well. Tough times for everyone these days. When people feel there's no protection, and no one cares, things can get ugly. This time I think the market has gone too far in that regard. There's just no trust. Hard to blame folks to be honest.

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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