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Stock Market Dancing At The Breakout....

Stock-Markets / Stock Markets 2010 Sep 12, 2010 - 10:12 AM GMT

By: Jack_Steiman

Stock-Markets

The stock market has been hanging around the upper end of its trading range for a while now. It seemingly doesn't want to pull back very much, but clearly it is struggling to make the bigger move up and out above 1105. Small sticks as we get closer and closer to making the move bulls so sorely want. Yesterday was interesting. It was able to close over 1105, but it's hard to get very excited. You have to wonder why it's so hard for either side to make a larger move. The bears seem unable to take it down, although they are holding the line. Normally, when a market struggles to make the big move up and out, the other side will come in hard and reverse the trend. Doesn't matter which way that is.


In this case, the bears aren't taking it down with a big reversal even though the bulls aren't running clear. What makes this even stranger is the fact that it's basically been going on for quite a few days now. After a certain period of time it's normal for the other side to say, you couldn't get it done so now we'll take it lower. Not exactly what we're seeing, is it! It could happen early next week, but we need to watch things very closely as we could just as easily break out above 1110, which has capped the move the past few days and run up towards the next big resistance at 1131. If we do pull back the selling should be contained by S&P 500 1085/1090. Interesting times with neither side in full control, but with the bulls holding well for now.

There have been two major headaches for this market. The semiconductors have been nothing short of terrible, and the financials, which have been a little better lately, but nothing to get happy about. Overall, they have under performed by quite a bit, and have been a real weight on the market. It is without question that this market has very limited upside unless these two sectors can get rocking higher on a more consistent basis. At least one of them has to step up and get moving. 1131, if we're lucky, is the best we'll see on this up move if these two sectors don't wake up. The bears are attacking these two sectors in an effort to keep the market held down from running further. I'll be watching these two sectors closely in the coming days to see what we can expect for the short-term.

Sentiment is still an important factor for this market. The latest readings on the bull-bears spread show that there is only a 1.1% spread of more bulls to bears. A 1.1% spread is good news for the bulls overall, although from week to week we see the bulls increased over the bears by 9.4% as there was an inverted 8.3% reading just a week ago. A nice increase in bullish sentiment, but the bottom line is a 1.1% spread is nice news for the bulls. If the news that comes out is bad enough, this market can fall with numbers like that, but it would take something very bad for this to take place. A 1.1% bull spread over bears keeps things from falling apart unless something extreme takes place. Always pullbacks, of course, but nothing too severe unless the unforeseen should happen.

The good news for the bulls thus far has been the rotation of dollars out of treasuries and back in to the market. The iShares Barclays 20+ Year Treasury Bond (TLT) has fallen quite a bit over the past week, or so, and if you study the volume trends, it sure does look as if there's distribution going on, meaning big money is selling the rallies. Is this a temporary phenomena as many suggest? That's the big question that can't be answered at this point in time. I will say it's interesting to see big money sell off the rallies and to see only light volume on the up days since it topped near 109.

If this trend were to continue it would be very good news for the stock market. Are people going to want to continue to tie up money in something that brings back such a small return over a very long period of time? That is the big unknown. Some feel like the safety of making next to nothing is better than the risk of the stock market. For the short-term we're seeing more and more people willing to move out of these treasuries and in to the market. I will monitor this closely, of course, especially watching those volume trends.

This is not a time to be aggressive. Longs seem best for now, but nothing more than 20-30% of your trading portfolio. Let's see if the S&P 500 can clear 1105 with force this week. Pullbacks should be contained by 1085 to 1090. One day at a time please.

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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