S&P 1370 Still too tough to Break, Time for Selling?

Stock-Markets / Stock Markets 2012 Mar 04, 2012 - 02:09 AM GMT

The bulls have worked long and hard to get this market to break out lover the current big resistance level at S&P 500 1370, but after many attempts over the past several days, it may be best if they give up their efforts and allow the markets to sell some to allow things to unwind far more deeply on those long overbought oscillators. Stocks such as Apple Inc. (AAPL) and Priceline.com Incorporated (PCLN) could use a rest, and if they get it, this would allow the market to pull back and take the necessary pause to refresh. The bulls would actually be best served if they let this take place as it would offer up a far better buying juncture down the road. A few weeks, or months, of slight downward action would really get the job done, but we can't be sure this is about to take place, although there are subtle hints. There are somewhat more labored MACD's on the daily index charts, some leaders in various sectors are starting to lose their 50-day exponential moving averages, which is a real change of trend that hasn't happened in many months, and we are seeing a few more economic reports come in below expectations lately, this week to be exact, and this could help the bears get a bit more aggressive and tell the bulls to step back.

We had bad news on durable goods and on the ISM Manufacturing Report this week. That's something that hasn't happened in quite a while. So maybe we're about to embark on some deeper selling, but the SPX has to lose 1354 for that to start happening with more of a guarantee. (There will be more on that level and its importance later on.) So the bulls are hanging tough, but the charts are tired, and now it seems the odds are increasing for some selling, at least, if not an outright correction of 3-5%. Adjust accordingly. If we blast through 1370, then the bears are on hold again until 1400 S&P 500.

Rotation continues to be the name of the game as the bulls are playing tag. If you get tagged, pull back for a while. This is occurring when sector charts hit 70 RSI, or a little higher, on the daily charts. They unwind to the upper 50's, or so, and then join back in to the upside. Whatever gets overbought gets sold off, and whatever unwinds gets bought up. This is classic bull-market action. It's how the bulls don't allow for key-support levels, such as 1310 to 1315, to get taken out. This also frustrates the bears, thus, they're not as aggressive on the short side in their attempts to take the market down. As long as they continue to see rotation around the stock market world, we should hold a bid to some degree, meaning no worse than a 1315 pullback, if that.

The commodity world is the one sector really taking it on the chin this week. Gold, silver, coal today, and many other areas of the commodity world are taking a hit for several reasons. First of all, they had a great ride up and got overbought. The more powerful reason, though, is that the fed didn't offer up much in terms of new stimulus when he spoke this week. That spooked the bulls a bit, and it got the bears rocking in. It didn't end well today for many of the oil and coal stocks not to mention silver as well. Gold held up better today, but still had a poor week overall. For now, it's probably best to stay away from these plays for a while and see how they handle some deeper selling at support.

Massive support comes in at the 20-day exponential moving average at 1354 on the S&P 500. Only when that level gets taken out is the market in for more serious selling, possibly all the way down to the area of the 50-day exponential moving average at 1321, or the long-term down-trend line at 1310. You'd think at some point the market is going to need to test down deeper, but for now, the market may work off overbought conditions through a little bit of price, but mostly through time. That's bullish in nature and occurs in the strongest of bull markets. It's not etched in stone that this is how things will unwind, but it looks as if 1310 to 1321 should be the worst of it over time, For now, we see if the bulls can finally get through 1370 with some force and try to get to 1400 first before the bigger pullback begins. Staying long for now.

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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