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Stock Market Bulls Clear 1131 S&P 500...

Stock-Markets / Stock Markets 2010 Sep 21, 2010 - 04:17 AM GMT

By: Jack_Steiman

Stock-Markets

It seemed as if it would never happen, but the bulls refused to let thing get away from them as the bears put up their front at that critical resistance level. Sure we sold off many times from 1131, but never hard and never for long. That was the key. The bears needed to throw everything they had at holding off 1131, but beyond that they simply could not sell this market off in any big way that put the bulls on notice that the bears weren't going to ever let it take place. Shallow pullbacks was all they could put together.


Today we saw the pullbacks stop once 1131 got hit. The market made it through. Not easily, but made it through nonetheless. It wasn't a blast off as I might have hoped for, but as the day went by it was clear the bears weren't going to bring this back below 1131 at the close. we closed a bit off the highs but the S&P 500 is now 1% through this massive level of resistance. Now the key is holding it. That won't be easy, and I'll talk more about that in a moment. However, for today, the bulls took control and can feel good about their accomplishment.

Now why is it going to be tough from here to hold on to 1131? The answer is simple. Overbought in a big way on the daily charts. Not just the short-term 60-minute charts, but those more important daily charts. Big time overbought is never easy to keep going and we're only 1% through 1131. The Nasdaq is through big time, so no worries there, but the S&P 500 is not through in a big way and now we have to see if the bulls can keep things from falling apart too much as the bears try to pile in at overbought. The bulls have their work cut for them. Let's look at the numbers. while we could squeeze out a bit more upside the Nasdaq has its RSI at 70 with stochastic's seriously confirming extremely overbought at 99. Can't go over 100. 70/99 is often lethal short-term but the Dow, S&P 500 and Wilshire still aren't at extremes with their readings all at 68 RSI and 96 stochastic's. Still very overbought not at 70 RSI quite yet.

However, you should not expect too much more if any upside near-term as these levels almost always bring about some selling to unwind these oscillators so they can gather strength and allow the markets to move higher once again. At these levels of overbought it doesn't necessarily mean you have to go all cash and you definitely don't short an up trending market but it does say you should not be thinking much about new plays for the short-term. Patience is the key now until better circumstances set up for the bulls once again.

The 1113 S&P 500 gap should now be rock solid support should the selling need to be deeper than 1131. I'm not saying it will have to lose 1131, but if it did I can tell you 11131 will be very tough for the bears to get rid of. 2300 Nasdaq will now also be strong longer-term solid support. If the bulls can squeeze out another day or two of small gain and get us near 1150, it is possible that all pullback's will be contained by S&P 500 1131, but for now we have to look a little deeper and it tells me 1113 S&P 500 and 2300 Nasdaq will be rock solid support as the bears try to take things lower from very overbought conditions.

The more days the S&P 500 spends over 1131 the harder it will become for the bears to take it away and this is why you can rest assured the bulls will try to buy bouts of selling as they know that staying above 1131 would be awesome for the bigger picture bullish case. Good internals today confirmed the breakout, thus, the bulls will try to keep things above 1131 for sure, if at all possible. For this reason, I don't know that I'd expect too much selling but again, bigger picture, there is tremendous support at Nasdaq 2300 and S&P 500 1113.

Now we get to see how the sentiment issue, which has allowed for this rally, unwinds back up. This rally will certainly get people somewhat more bullish. Last week we saw figures at 5.7% more bulls. It will be so interesting to see if we are now back in the teens. And this would be as of the end of last week. With today's rally it'll probably spike even further so the sentiment trade may be disappearing in the days or weeks ahead so be prepared for that eventuality. Sentiment works at extremes. Those extremes are probably going away, thus, I am quite anxious to see those numbers come Wednesday morning. I'll let you know the moment I do.

For now we have to watch how things unwind as the next bout of selling takes over, to whatever degree that may be. How the oscillators do, or don't do, impulse down with price will be very telling for the potential rally to come once the selling is completed. We take things one day at a time, and let the market tell us what to do. Let's not predict, but rather let the oscillators be our guide.
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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