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Stock Markets Clear Moving Averages.. Trend Line Headache Dead Ahead...

Stock-Markets / Stock Markets 2010 Sep 04, 2010 - 07:07 AM GMT

By: Jack_Steiman

Stock-Markets

This week saw some good things happen for the key indexes. The S&P 500 and Nasdaq both cleared their 20-, 50- and 200-day exponential moving averages from underneath. You don't see that take place all that often. Getting through a single moving average can be tough enough, but getting through all three major moving averages is something the bulls have to be feeling pretty good about. The 20-, 50- and 200-day exponential moving averages on the S&P 500 are at 1078, 1086 and 1092 respectively.


On the Nasdaq the numbers are 2184, 2212 and 2218. The S&P 500 closed at 1104 while the Nasdaq closed at 2233. This is really good action folks. Many will say it's just an overdue bounce off the bottom of the recent range but I think it may be something different but it's too early to say at this moment in time. More on that later. Bottom line is the price action for the week is very strong. No one would argue with that. The bulls can breathe a sigh of relief for at least the very short-term.

The bears will tell you that the report on jobs this morning does not warrant this type of rally. Maybe they're right if we're dealing with reality. The market doesn't always necessarily work off reality or truth. It works off what it wants to see things as being. It also works off sentiment. The bulls can say that today's number, although unhealthy of course, was not nearly as bad as expectations were. The market was pricing in really bad numbers at a loss of 110,000 jobs. The losses were at 54,000.

That's not good news, of course, in the real world. Losing jobs month after month, if even only a drop, is never good news. However, the market is a different mechanism. It said 54k losses aren't priced in so up we went. So, today was the truth the market works off of, and that was to move things higher based on the economic news we got this morning, whether it's really good news or not in the real world. The bears may cry foul, but that's life in this crazy game. Who can blame them really but it is what it is.

Sentiment is a big issue here. We got long on the market when we saw the bull bears sentiment get really inverted. Too many bears with only 29.4% bulls and 37.7% bears. A separation of 8.3%. That's an unusually high number of bears over bulls. The trade simply got too full. When you get this full you normally, although not always, need to unwind the pessimism to a more optimistic perspective.

You can fall much harder from a minus 8.3% spread but ONLY when the economic news is far worse than expectations. We did not have that this week as the ISM Manufacturing Report came in better than expectations as did the jobs report. With those reports being better than the street thought they would be, and with the bearish trade quite full, it led to upside few though possible.

The SPX has resistance at that nasty trend line currently between 1105/1110. Let's call it 1110 to be safe. If it can blast through it the bears are in deep trouble if they don't get it right back down. The momentum is building for the bulls currently, and thus, the bears are up against it here. They need to desperately defend this trend line or things will go from bad to worse for them. If we clear 1110 then we should run up to the last highs at 1131.

Let's not get ahead of ourselves. One day at a time, and let's see if we can clear that 1110 S&P 500 number. In addition, the short-term charts are overbought, and thus, a move over 1110 may not stick initially. If any pullback is shallow in nature and doesn't get confirmed by our key oscillators, the market is likely to clear above and stay above for at least a while. Again, slow and easy here folks, but things are looking better for the bulls short-term. It does not mean things will be better for the longer-term, but short-term things are more favorable than not. Support comes in the S&P 500 at 1092 down to 1086, or the 200- and 50-day exponential moving averages respectively.

Have an awesome weekend. Enjoy family and especially those kids. Show them the love they deserve and need.

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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