Stock Market It's All Bad....Except It's Not.....

Stock-Markets / Stock Markets 2011 Nov 08, 2011 - 02:19 AM GMT

I have been around for a long time. Too long in this business, but if there's one thing I have learned more than anything else, is that you don't want to be on the side of the masses. Sure, once in a long while they get it right, but most of the time they get it wrong. I'm not just talking about the masses being the traders of this game. I am talking about the traders, writers, interviewers, and so on. It has been a long time since I've heard such gloom and doom.

Maybe that's what will happen as default after default will ultimately come into our reality, but it hasn't yet, and the masses are taking it as a given that the worst case will soon arrive at a theater near you. If you read anything under Yahoo Finance, or Bloomberg, or turn on any business station, all you'll hear is how the worst is yet to come for our stock market. That it's basically doomed, and you should not be trading, or investing in it. They've been saying it since we bottomed at S&P 500 1074, and they're still saying it up at these levels. Refusal to accept that something good has occurred, and that it's possible something not so bad will be the end result for Europe.

The bull-bear spread has been under 10% more bulls, if not double digits inverted more bears, for over six weeks now. These are the types of levels we love to see. There is just no belief anywhere that there can be some form of a happy ending to what is ailing this country and from abroad. So yes, the problems are real, and thus, I in no way, am saying we shouldn't fully respect them and what's possible in a negative way, because there is the possibility that things will end up badly. You don't want to over play your hand, but you also don't want to not be involved at all on the long side of the ledger. While the masses hate things so much, I would be very suspect to short the market, although you can if you find the right set-up. But I just don't think that shorting is the best way to move forward for now.

Today was a good example of how the masses can be fooled. The market started flat, moved higher, and then sold off very hard as the morning wore on and that lasted in to the afternoon. The Dow was down over one hundred points with the Nasdaq down over thirty points. The Nasdaq also massively underperforming, meaning froth was being sold, which is never good for the market. Then the market turned. It didn't blast off. It turned, which makes overall sense. The European situation casting a shadow of fear over the market, but then too much fear, causing the market to rise back. Once again, the put-call ratio was hanging around one all day.

The put-call has been hanging high for many weeks, if not months. You stretch things too far on the dark side and it recoils back up. The trade being mostly full. The market acted today in a fashion that shows the indecision over how traders want to play, but also showing how, when the fear moves up, the market will find a way to bounce back. Traders aren't holding long, thus, it's hard to get too much upside, but the market is finding a way to hold up, it seems, until there is clarity in Europe. Not a bad day for the bulls after what appeared to be a really dark day for them early on.

When I look around and study things from individual stocks to all of the key index charts, there are some bad looking set-ups out there. No question about it. However, more than a fair amount of set-ups look quite favorable. We all know that something set up favorably can move away from that reality in a short period of time if the wrong news hits. That said, you wonder why they look so decent. Doesn't the market foretell what's coming. I think it does to some degree, although it can never see everything coming. At least I don't think so, although you never know I guess.

Bottom line is I don't see a negative overall tone in the charts no matter where I search, and that includes the dreaded financial stocks. Goldman Sachs (GS), Bank of America (BAC), Citigroup (C), American International Group, Inc. (AIG), Wells Fargo (WFC), Morgan Stanley (MS), and others. They are far from wonderful, but you couldn't convince me they look bad. So many different sectors within the market look pretty decent technically. If the majority of them look fine then one would think the markets bigger picture intention is to try and advance higher, even if it's just a small advance, or a grinding type of advance. The grinding part works best for me.

I am more a technical player than a fundamental one, although I think both are powerful and useful. The technicals say things aren't all that bad at this moment in time. Maybe it'll change, but right now it's not that bad. Maybe I'm being fooled, but all I can do is play what I see, and not what I want to see. Things look pretty good to me from that perspective, thus, that's how I lean in my thinking of what's to come. The market is setting up in big triangles. They are annoying at best. They are fairly wide and loose. The top being the recent high at 1292 S&P 500, and the bottom being the 50-day exponential moving average at S&P 500 1215.

That's 77 points of fun and laughter to play around with. It can give you headaches as it traverses up and down the pole, but for now, we must respect both ends of the ride. 1292 is very resistance, but so is 1253 up to 1260. We must clear those two levels only seven points apart if we want another ride up to the 1292 level. If we lose S&P 500 1215, then we will have lost all critical exponential moving averages and the bears will regain full control of this market technically. The parameters are set. The game is ongoing. Whichever side takes away the key levels will be the winner, which will set up a more directional move. Some exposure is fine. Full exposure is not.

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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