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Stock Market Rallies into Doji Resistance, Will it Matter?

Stock-Markets / Stock Index Trading Oct 08, 2009 - 11:50 PM GMT

By: Jack_Steiman

Stock-Markets

Let's take a moment and talk about doji's again. When a market over a period of some days is either in an up trend or in a down trend and we print a doji, it means we should reverse the opposite way for a few days. That the other side has caught up. A doji usually occurs on a gap up or down with the market being virtually flat the rest of the day.


Today we saw this take place. A nice gap up over 1060 on the S&P 500 but no follow through towards the upper end of the gap at 1080. We did push higher early on but that got wiped out as the day wore on. We did get overbought on the short-term charts intra-day and that helped the doji take place. So we go back to the title of tonight's letter. Will it matter and allow the bears to take near-term control, or will conventional technical analysis not work here as the up trend continues on?

Normally I'd tell you that we're headed lower. No way around it. It may not be a big pullback but we're headed lower. However, because we were able to hold above 1060 on a closing basis on the S&P 500, I'd say we can't take it for granted that some selling is upon us here. The 1060 level was rejected twice since last Monday so the bulls have to feel pretty good about closing above it, but you have to respect the stick printed thus things are open but with a clear buy signal overall still firmly entrenched. To repeat it for the hundredth time, that only goes away when we lose the 50-day exponential moving averages. Not a minute before, no matter how bad things may look. Bottom line about today is we closed over 1060 and that's a start for the bulls but we have to be very careful about the doji printed.

Today was interesting in that we saw a clear line drawn by the traders as to what they wanted to own and what they wanted to sell. Some sectors were great and some performed poorly. Traders wanted retail stocks as most of the same store sales numbers reported this morning were better than expected. They also wanted to own transportation stocks which have severely under performed lately.

First on the list of ownership were those commodity stocks as the dollar tanked again. They were not excited at all about financial stocks, a main reason we stalled out. They also didn't want the China stocks nor did they want anything to do with semiconductor stocks. The big cap technology stocks also weren't on the list. Apple Inc. (AAPL), Google Inc. (GOOG), etc. A very interesting day to see where the money was flowing and where it wasn't.

The bears always seem to gravitate to the financials when they want to take this market lower. When heavily weighted stocks aren't gobbled up such as those big cap technology stocks and the financials such as Goldman Sachs Group Inc. (GS), it's very hard to make the move to the top of the gap or 1080 on the S&P 500. That PowerShares DB US Dollar Index Bullish (UUP) chart and its falling wedge pattern played havoc with price once again. New low after new low and that's why the commodity stocks were the best. It's becoming sexy to talk about the dollar fooling people in to thinking it's going to continue straight down. That it's about to fly higher. That may be the case and falling wedges often bring about breakouts to the up side.

However, before you play the move up and out, you have to at least see a reversal stick that says it has possibilities and on big volume. We have absolutely no evidence that this is about to take place. When it does, I will adjust accordingly but not a moment before. No anticipating something that's on a major breakdown. It has to prove it to me with the right reversal candle.

We have the 20-day exponential moving average now at 1047 on the S&P 500 and 2091 on the Nasdaq. The Nasdaq is putting some real distance above it now. The S&P 500 not half bad either. These are the important support levels for now. 1080 S&P 500 is the only level we need to think about for this market. It's the October 2008 high on that gap down and the recent high in September of this year. 2167 is the September high on the Nasdaq. If we clear 2167 and 1080, we will shoot higher. We shouldn't worry about that right now as the S&P 500 isn't even close. 15 long points away with the bears throwing everything they can to prevent it from happening with every point we move higher in to this gap. The closer we are to 1080, the more desperate they'll become. It may require a gap above to get the job down, if it ever indeed does get done. Again, it will NOT be easy.

We now know it's really all about the dollar, like it or not as an excuse to where the market is headed. Scary to have one element of the world so in control of what's taking place but it is what it is as I love to say. Don't fight the way things are. Adjust to them. The dollar is more than due for some type of reflex bounce but has shown no inclination to do so. When it does bounce, it doesn't follow through.

The daily divergences on the major index charts look awful at best although the stochastics are strong. For me, however, I'm always nervous when those divergences look so bad. I feel in my heart there's payback to come but we have to realize that those divergences are being generally ignored because of the behavior of the UUP dollar chart. As long as stochastics are fine, I guess the market can try to grind higher. And it has been a grind lately. A very tough market that is making buying stocks not easy because of those divergences. Just keeping our heads down and allowing the market to dictate off that UUP chart.

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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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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