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Stock Market Bulls Take Back The 20s.....

Stock-Markets / Stock Index Trading Oct 07, 2009 - 12:59 AM GMT

By: Jack_Steiman


And the bulls say take that. The emotion of the game is what always makes this the toughest game on the planet. We all have to admit that things looked pretty dire for the bulls there. Negative divergences finally playing out.

Overbought at extremes finally playing out. We were plunging down pretty fast. Right through the 20-day exponential moving averages on all the major indexes on only the second try by the bears.

Normally it takes three or more times thus you had to be impressed by the overall action from the bearish side of things. We got down to the 50-day exponential moving averages across the board and thus it was do or die time for the bulls. There was almost a 100% chance we'd bounce the first time off that big test and bounce we did. What wasn't necessarily on the docket was the bulls easily clearing their way right back through those lost 20's. That was what we didn't know would happen and quite frankly, I really didn't think would happen, at least so easily.

What made me think yesterday it would happen as the day went on was how hard those MACDs on the 60 minute charts were shot higher and that if we moved back down, gargantuan positive divergences would form across the board. Once the bears recognized this fact, they took their foot off the gas with the bulls taking back control for the day. We closed off the highs but over the 20-day exponential moving averages although things are far from perfect. I'll discuss that shortly. Bottom line is the bulls were able to take back important moving average resistance just lost as support and thus they have to feel good about how the day concluded.

There is a wall of resistance the bulls now have to work through to get rocking higher. If you remember last week, on Monday we had our only good day of that week. We shot higher but if you recall, we stalled out right at the bottom of that huge October 2008 gap that runs from 1060 to 1080. We hit 1060 and fell. Today was no different. A nice up day but we stalled once again at the bottom of the gap at 1060. The high on this move just happens to be the gap top at 1080 thus if we're struggling at 1060, there isn't too much to get overly excited about.

This huge gap is truly a nightmare for the bulls. When it took place, it was on huge volume and on a gap and run down day. Lots of willing sellers still out there clearly at this 20-point monster gap. So while today was good for the bulls in some regards discussed above, the bottom line is we're still nowhere. We are holding the 50's and now the 20's again as well. However, we can't get through the gap. We're in yet another tight range for now. It has to break at some point but for now the overall trend remains favorable as long as we're trading above the 50-day exponential moving averages.

What's so amazing to me is how the market seems to be trading off one chart, the PowerShares DB US Dollar Index Bullish (UUP), or the chart of the dollar. The market continues to love the fact that the dollar is falling apart. Seems strange for so many reasons I won't talk about here but that chart is posted for your viewing tonight. It tells the tale of why this market simply refuses to go away. It's not totally broken down but the down channel continues to be in place and thus overall weakness is the name of the dollar game. It's showing little in terms of relative strength and is closing in on a total breakdown. It is getting closer to support so we'll need to see what takes place when it gets there. Another weak bounce back up in the channel offering the stock market another pullback or just simply break down and allow the stock market to soar above 1080 S&P 500. We can remove a lot of the old traditional technical analysis and just trade the market based on what's going on with the UUP chart.

SPDR Gold Shares (GLD) had a breakout move in gold this week out of a two year basing pattern. Volume is strong on the move so far. But one thing to keep an eye today was the reversal on the financials. They were up huge but did pull back off their highs in a big way which is exactly the reason why the S&P 500 failed to make it back in the gap as the day came to a close. There was a small intraday rally off the lows on the UUP and that was basically the reason for the reversal. With the UUP still closing weakly overall, we need to see if those financials can come back and bring the S&P 500 back in to that gap so it can have a chance to test 1080 once again. Most of the charts in the financial sector still have favorable technicals here so we can't count them out.

The updated support and resistance levels are in. They change slightly each day at the close of trading. Of course I'm talking about those 20- and 50-day exponential moving averages. Support is now first the 20's again and then the line in the sand 50's. On the S&P 500 the levels are at 1044 on the 20's and then 1020 on the 50's. On the Nasdaq the 20's are at 2085 with the 50's at 2030. Resistance is clear. One focus and one focus only. 1080 S&P 500. That's what this market needs to see in its rear view mirror. Until that clears, the bulls can't celebrate anything. Until 1020 goes away, the bears have nothing to get happy about. We'll just try to pick off plays on set ups that look good to the long side. Go easy.

Jack Steiman

Jack Steiman is author of ( ). Former columnist for, 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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© 2009

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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