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Stock Market Rallies to Fill Bear Market Gap

Stock-Markets / Stock Index Trading Sep 17, 2009 - 01:45 AM GMT

By: Jack_Steiman

Stock-Markets

Stunning. How in the world did the market just say "I don't care" to 1060 on the S&P 500? We closed at 1068 and that's barely through, but come on, even getting through it by 1 point is impressive enough. When we had the gap down from 1080 to 1060, it was a huge gap obviously and occurred on massive volume. There's no way we should have been able to just move into the gap again with the top at 1080. If we clear 1080, look out above. It shows you the intensity of just how strong this market is.


All of this goes back to what I have been harping on to all of you based on emails throughout the past many weeks, and that's to never short an uptrend in place. It just causes major whipsaws with very few exciting results. Most of those results will be ones that aren't favorable. I know many of you have been telling me that this rally doesn't make a whole lot of sense fundamentally, but we can't play that way. You are probably right. Who am I to say that these moves higher are appropriate or not. They may not be, but so what? Never argue with the message of the market. This means, and this is tough for many of you to hear, but it means stop playing emotionally. Maybe not one point of this rally is right. Maybe things are a lot worse than the market is telling us. The market just doesn't care; thus, you have to turn off the heart, the emotion, and play with your head, the logical side of things, and play what you see and know to be true -- and that is we have been and still are on a major buy signal. That has never shifted. Not for one moment since we took out SPX 956.

We started out with a move higher today based on stronger futures from good overnight action in Asia and Europe. Throw in good news on the CPI, or the consumer price index, and the market was up some. The bears tried a few times to sell this off, but were once again unsuccessful. We spent the day grinding in to the 1060 gap, and without much of a fight we took it out and closed basically just off the highs. Tremendous action from a bullish perspective. 1080 is the top of that huge gap and we'll see what happens if we get there but today's action tells me that we should make at least a try up to that area in short order. Leaders led today and did so in a big way and this kept the bears away throughout the day which allowed the market to successfully get in to the gap. Upgrades to Apple (AAPL) and Amazon (AMZN) gave the market a strong boost in tech land. Once the tech stocks lead, it's very hard to take the market down which took the bears out of the picture today right from the opening bell to the closing one.

The financials picked it back up again today after pausing and under performing for a while. I have talked about this sector being the key to hopefully getting through 1060. Without it the market had no chance; thus, it's no shock that today we saw some very powerful action from this area. It will need to continue performing if this sector has a chance to get through 1080 which would then take the market over 1100. This sector didn't perform for a while but the rest of the market did which kept things moving higher overall. Once things unwound for this group, it came alive again and just in time for the 1060 test. Solid action there and will need to be watched closely for future market insight.

As usual, the dollar struggled and struggled mightily. The inverse reaction by the market that has been in place for quite a few months kicked in again today. The breakdown in the dollar continues to deepen and this will make things much more difficult for the dollar bulls because the bear flag breakdown has now come down quite a ways and thus the bears find it easier to take it down as soon as it try's to get going. The dollar collapse somehow can't be good news bigger picture for all of us but for now, the dollar's collapse is the markets good fortune.

We talked about what comes first, the 1018 gap or the 1060 gap. We're in to that gap now with its top at 1080 and if we take that out, there's nothing until about 1125. A perfect 50% move up off of the whole bear market puts the SPX at about 1150 and maybe that's this markets destiny over time. I can't know that for sure but it seems to be a magnet calling the market higher. Don't count on that happening but you can't argue with what seems to be unfolding here.

Look folks, this can't go on forever and at the top. We'll get caught in a few plays. We've been through this drill before. You have to stick with the primary trend in place until it isn't unless you'll miss everything. Fortunately, we've been in the game. We exited Dicks Sporting Goods (DKS) today with a 5.7% gain in three days, and Mosaic (MOS) with a 2.5% gain, and are still holding three swing positions. You have to play, but do understand there's risk here. Overbought, etc. You know this old drill. Pullbacks can still be bought for now. Until we lose 1018, the trend remains bullish, thus higher.

Peace
Jack Steiman

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.

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