Stock Market Consolidation....S&P 500 2079 Gap Next Up....Then 2134....

Stock-Markets / Stock Markets 2015 Oct 27, 2015 - 12:01 PM GMT

If ever there was a time for a brief newsletter, today is that day. There is literally nothing to add from Friday's report. Every market pauses from time to time no matter what direction it's moving in directionally. A pause to refresh. That's exactly what we saw today. The market made a strong move, and, thus, got overbought not only on the short-term charts, but on the daily charts as well. Daily charts hang in better at overbought, but those short-term charts do need occasional unwinding. We got a bit of that today, although nothing special as those ravenous-retail bulls are looking to buy all dips for the moment.

Moving down slightly to laterally does do the job. However, on those short-term charts, and when oscillators unwind without too much price erosion, it appears as though the market is setting itself up again for a move higher. It's never a guarantee, but bullish environments find a way to stay status quo, and unwinding without price erosion is the way it's normally done. Follow the price/oscillator duo to understand a deeper message. That can be done on all time frames. So today wasn't a strong up day, but in many ways it was just as bullish. We can surely use a bit more selling to unwind, but it's impossible to know whether that's in the cards as the market has its head mostly down and charging. The bulls didn't get big upside today, but they should be feeling pretty good about the short-term nonetheless.

The other natural reason for the market to have paused today was because, after a strong move higher, markets normally pause at the next big, resistance level, and in this case it's a gap at 2079 on the S&P 500. Gaps are the number one headache for bulls. While moving averages are also tough resistance levels, I have found that gaps play the nastiest in terms of getting through. The bears are desperate to defend 2079, since once the bulls take it, they having nothing between 2080 and 2134, or the old highs, and the bears want nothing to do with that becoming a reality. So the fight is on for the moment, but I believe it's a fight the bears will lose over time. The bears will have to start another round of short covering once 2079 goes away with a bit of force, and that's the extra fuel the bulls will need, hopefully, to retest the top at 2134.

Then the bears will try again at 2134, but this time even harder, since a breakout above the old highs opens up blue skies for the bulls. The bears have the unfortunate task of being believers of the truth. That doesn't work most of the time in the stock market, especially when rates have been at zero for so long. The bears will most definitely have their day in the sun in the not too distant future, but, for now, they're fighting truth, and truth isn't cutting it. So we watch 2079 with a keen eye, and then focus on 2134. I'm not sure how much selling is left from overbought, but my guess is, we shall be challenging 2079 in the not too distant future.

Rotation is still part of the game each and every day. What's good one week is bad the next, and, in fact, that can be occurring on a day to day basis. Biotech's stinks and then they are great. Financials are great, and then they stink. This process is being repeated over and over. When a sector needs to pull back it does, but another sector will take over the buying to keep the market up and bullish.
Rotation has been the markets game now for many years. When rotation stops you know the end of the bull is at hand, but, for now, nothing could be further from the truth. Money is consistently finding a home in the market and not coming out of it. Rotation has kept the market alive for six-plus years. The end is drawing closer, but the game is still alive and kicking.

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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