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Stock Market Critical Support Holds

Stock-Markets / US Stock Markets Sep 29, 2009 - 03:25 AM GMT

By: Jack_Steiman

Stock-Markets

I talked about the first important, though not critical, support level on the indexes being the 20-day exponential moving averages. We tested down to those levels late last week but held and closed right near them. The key was to see if we were in a more immediate selling phase or not, which would be known by how the market responded today. It left little doubt about where we are on the journey.


The market held and it looks as though the bears may need a little more time before getting what they want out of this market. Now, by no means am I suggesting that we blast off from here. Probably not but more upside seems very realistic now that we had this impulsive move off the 20-day exponential moving average. The key was the advance-decline line today and that's what makes it a bounce to believe in. If the move had been on mixed advancers to decliners then you'd have to be very leery of the move up today.

However, when we glance at the numbers we can see that numbers were good thus it was a fairly widespread advance off those 20's. 29/8 advancers over decliners on the NYSE and nearly 20/6 on the Nasdaq. That's something you can dig your teeth in to and say a larger market decline is probably not upon us quite yet. That's likely some weeks from now but not quite yet.

The futures were lower last night as Asia was taking a pretty big hit. Our futures were taking it on the chin a bit until Europe opened up with market gains thus our futures turned around quite dramatically and held those gains going in to the open of trading. It wasn't a huge open higher, but it was higher nonetheless.

As the day progressed the buying intensified. There just weren't any real selling episodes. An upgrade to buy on Cisco Systems, Inc. ( CSCO ), a market heavyweight, helped the averages advance nicely. Once that stock gapped up, it made it more difficult for the bears to get any traction going. As the short term charts became a bit overbought we saw some late day pullback but still a close well above the morning gap up, which is more bullish short term than bearish for sure, although we can always have small pullbacks at any time.

The volume was lighter today due to the Jewish holiday. Again, that doesn't take away from the solid internals printed across the board. The 20's held when it seemed they were about to break, and thus, today's action says patience if you're a bear and to hang in there if you're a bull as we should print higher overall prices over the next many days to a couple of weeks.

So let's spend some time and go over the levels of support and resistance that mean something to this market and thus you're trading habits. On the S&P 500, we closed at 1062. 1075 is the recent high and 1080 is the top of that October 2008 gap. Some very formidable resistance very close together always makes breaking through more difficult. If we clear those levels, 1125 is next. Support is at that 20-day exponential moving average at 1045 with gap at 1018 and 1013 being the 50-day exponential moving average. For now, focus should be on the 20-day at 1045.

On the Nasdaq, we closed at 2130. Resistance is at 2155 or the top of the range with support at the 20-day exponential moving average at 2086 and rising daily. 2101 is now gap support as well. Today was a good day for the bulls adding that gap in to the mix. The Dow, the least important index, closed at 9789. It has support at its 20-day exponential moving average at 9642. Up side isn't just going to be a walk in the park here folks. For now, down side action should be contained. Watching S&P 500 1075/1080 for breakout thoughts and watching 2155 Nasdaq for the same. 1045 and 2101 down to 2086 are support for the S&P 500 and Nasdaq to watch for respectively.

When the market goes down as heavily as our market did for seventeen months, when it bottoms, it usually bottoms with a strong move higher as we have seen. The problem is, understanding how high it actually can go. It is not unusual for the market to retrace back up 50% off those lows made once the market bottoms. The reason for such large gains is due to the incredible pessimism created along with the degree of oversold reached. Sentiment gets to levels rarely seen thus oversold gets to levels rarely seen and this can give markets a boost of 50%. 1125 is roughly that level thus the reasoning for thinking that level is possible although, by no means, a guarantee.

The market can suck you into thinking that level is guaranteed once it gets this close but I don't live to that. It is possible, yes, but I won't run in loaded up saying it's a guarantee. Again, some long exposure is appropriate but we are getting near levels that will top this bull out, at least for the short term. Remember, even if we get to 1125, that's only 6% from here. The majority of this bull run has been made. This is crumbs land. The gains won't come as easily. More pullback's and down days in between the up ones. Makes things more emotional.

For now, longs seem the way to play. The next big move is likely down once we top out in the next several days to couple of weeks.

Again, longs only for now.

That will change folks.

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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