Stock Market Surges On Overseas News...

Stock-Markets / Stock Markets 2011 Mar 22, 2011 - 02:09 AM GMT

A great day for the market today as very good news out of Libya sent the futures rocking higher. Democracy is close at hand. The way it should be, of course. Equal rights for everyone. Autocratic rule about to be replaced, and that's what that country needs in the very worst way. It looks like that's coming to a head with Khadafy on his way out shortly.

News out of Japan wasn't so bad either, and thus, the stock market opened with a strong gap up and all the indexes performing well. Good to see all of them moving together in harmony, and not bifurcating, as the Nasdaq has done so well lately. It was a smooth move higher all day that started to stall the moment the S&P 500 hit its 20-day exponential moving average, currently at 1299. It hit 1300, and started to back off, but held above 1293 where the 50-day exponential moving average is now, but no thrust to be sure. The Nasdaq remains well below its 50-day exponential moving average at 2714. It would be bullish if we could get the Nasdaq to join the S&P 500 and Dow above the 50-day exponential moving average. It's not bearish that the Nasdaq is trading weaker than the S&P 500, but it would be better if it led and wasn't dragged up by the S&P 500. You want to see higher risk out there, but for now, we can say with certainty that today's action took the S&P 500 back above resistance, although barely, with the Nasdaq trying to play catch up, however, it was showing decent action.

A solid advance-decline line added to the solid action, and this is important on days like today when an index, or more than one index, breaks back above key resistance. The sellers were kept down and overwhelmed, so in the end we can say today is what can happen when the bigger trend remains higher. There is still nothing out there suggesting the bull market has ended bigger picture, but I'm always open to all possibilities. Today said to remain bullish bigger picture for now.

Weakness managed to show itself in those bank stocks again folks. The KBW Bank Index (BKX), or proxy for those bank stocks, flashed a long, bearish tail off the back test of its 50-day exponential moving average. It's not necessarily a death blow, but the banks and financials have been the weakest area of this entire bull market, which we all know led the most recent bear market. If the KBW Bank Index can break above its 50-day exponential moving average at 52.56, that would be very bullish for this market, especially on a closing basis. It closed at 52.01 today after testing above that.

Many other areas are breaking back above without a fight, while other areas are less successful on their back tests. Few failed with such a long tail the way the banks did today, and this remains a sore spot for the market. Although few will argue that the market has been able to ignore the overall weakness in this sector. However, if the banks can break above resistance at 52.56 on a closing basis, it would boost this market in a huge way. So watch for that in the days ahead.

To show you the weakness in this sector, Citigroup, Inc. (C) announced a sadly needed 10/1 reverse split in the weeks ahead so as to be able to get their stock at higher levels, even though you get only 1 share for every 10 you owned once it takes place. Reverse splits are a measure of desperation. Not good to see, but fits in perfectly with the longer-term headaches this sector of the market has had to endure.

We like to follow the iPath S&P 500 VIX Short-Term Futures ETN (VXX) to see what direction the market may want to be taking for the short-term. The VXX was trading in a base triangle that broke down below support today. A clean break of the triangle. This break suggests, but never guarantees, a move lower, which would portend higher prices of some kind for the overall stock market. There are outside influences which could make it a false breakdown, such as Libya and Japan. But you have to respect this type of break, which suggests lower prices for the VXX, and thus, higher prices for the market. Doesn't mean up for the market every day. Not by any means. It means up overall as long as the breakdown holds. It'll be interesting to follow in the days ahead.

There is one problem facing the market here. The recent highs on the Dow and S&P 500 at 12,391 and 1344, respectively, may be tested here and exceeded. No guarantee, but the action suggests this is a realistic situation. If it does happen we will be facing massive negative divergences on the weekly charts on all the major index charts. Never a good thing to flash negative divergences on those weekly charts as that usually ends quite badly for the short- and medium-term with, at minimal, a major pullback of well over 10%. It would be best for this market to handle out for a while longer to let those oscillators set up differently. I don't know if we'll get that to happen, unfortunately. We could exceed the old highs by a few percent on those divergences, but then there's a nasty price to pay. For now, all we can do is watch and see how things play out. Daily negative divergences are bad enough to deal with, but when you flash big negative divergences on the weekly charts, that's simply not good for a while. And you need to be prepared for that if it takes place. No worries yet. Let's just watch and see how things unfold.

For now we're fine. We watch to see how the daily charts set up and keep some long exposure. I don't think it's wise to get overly involved as world news is hitting daily on some very sensitive subjects. Some exposure is fine. 1299 is big resistance for the S&P 500 to get through, or the 20-day exponential moving average, while 2714 is key for the Nasdaq or its 50-day exponential moving average. A day at a time.

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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