Stock Market Edging Through The Wall.....

Stock-Markets / Stock Markets 2010 Jul 24, 2010 - 09:13 AM GMT

What a fight we are witnessing. The bears setting up camp right at 1099. The bulls working every single day to try to get through 1099, but seemingly never able to make the necessary move. Why? Because those bears have such a strong confluence of resistance within an 8-point range. We talked about it yesterday. The previous tails off 1099, the trend line at 1095 and the 50-day exponential moving average at 1091. 1091 to 1099, and yet within that small 8-point range, there is resistance after resistance that on their own would be difficult let alone having all of these headaches come together in such a tight area.

So, today we were up early and we were down early. Heavy swings early on with most of the action to the down side. Every time it looked bad the bulls would come fighting back. Unable to push through, but nonetheless, hanging well within the area that gave them a fighting chance. Today we saw the bulls make a run to finally get through 1099 and get through they did. Well, sort of. We got through 1099 but couldn't keep powering through thus we fell back down below 1099 with roughly thirty minutes left in the trading day. It looked bad but the bulls said not today. Today we're closing above.

They got the job done. Well, sort of. Not really done, but a start. Let's call it a start. Nothing to get excited about, but at least it an official close over 1099. 1102 looks better than 1099 if not for an 11 instead of a 10. Three points above does not qualify as a breakout, but it gives the bulls hope. If we can gap up on Monday morning then you have your breakout. It'll be interesting to see how the world markets respond Sunday evening in to Monday morning before our markets open. The action overseas will dictate our futures, thus Sunday night will have some meaning on our market on Monday morning.

A good day for the bulls. Not a great day, but definitely a good day if not a good week.

The bulls still have a very critical component on their side of the ledger. The sentiment continues to be deeply bearish, which is contrary to what they'd like to see. The bears know that too many of them makes down side difficult. We are at par on the bull-bear percentage reading as of Friday of last week. 35.6% each. This is the type of reading that says the bulls are going to have a bit of an easier time with this market. It doesn't mean we can't go lower but readings at par usually mean that sustainable down side action is unlikely. This is music to the ears of the bulls. This reading also does nothing to guarantee large gains. It could be more of a meandering market. However, the bottom line is that the bulls have a strong ally on their side in sentiment and now it's time to show the bears what it means, S&P 500 1131 in the near future.

Earnings are the other key component to bullish or bearish markets. Sentiment is on the side of the bulls. So how is the earnings stacking up? Quite unexpectedly well in my humblest of opinions. Most of the stocks are reporting better than expected earnings, and more importantly, giving decent guidance for the quarters upcoming. Are they fooling themselves as many bears believe they are?

Quite possibly yes, but for now the market is willing to give them the benefit of the doubt. If they happen to get this wrong then these stocks will get slaughtered three months from now. For the moment, all we can do is say nice job corporate America. With earnings mostly solid, and with sentiment on the side of the bulls, it would seem likely that we'll get back to the old highs at 1131 on the S&P 500.

So what's on the side of the bears? The very fact that the economic reports are coming in poorly potentially foretells of some very bad earnings to come over the next several quarters. Unemployment is rising. Manufacturing is dying everywhere. The reports from a week or so ago on the Empire State and from Philadelphia are showing intense contraction on the manufacturing front. There are problems with the housing reports as well. The economy seems to be slowing wherever we turn, and this can not be ignored. Yes, for now things are better for the bulls due to the reasons I mentioned above, but don't write the bears off the bigger picture just yet. There are reasons to be bearish bigger picture, and we'll deal with that at the appropriate time.

For now, we just go day to day trying to figure this game out. Short-term still feels more bullish to me due to those sentiment issues, and the better earnings we've seen these past two weeks. Day to day, but staying long for now.

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.

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