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Stock Market Grinding Higher...

Stock-Markets / Stock Markets 2010 Oct 09, 2010 - 04:18 AM GMT

By: Jack_Steiman

Stock-Markets

This bull run for the last few months can be looked upon as the grind run. Nothing too explosive day to day, although, there have been some good days in there. Mostly, however, it's been a grind up. One step up and three quarters of a step back, yet, when you look back, we're higher. Up day after day with small pullback's along the way. Sticks aren't too large all that frequently, but when you add it up, it starts to feel like we're blasting higher, even though it's not that way in reality. Today was just that type of day.


We started off with a move lower, but nothing too bad. It started to accelerate after churning, but once the markets started to really sell off in came the buyers once again. Once the bears recognized they weren't bringing down the markets any longer, and that 1160 S&P 500 would hold, it slowly grinded higher with a small pull back at the very end of the day.

When you look at the numbers, it was yet another up day, and we closed above S&P 500 1160 and the Dow above 11,000. A solid day for the bulls. The bears need to rock soon, and thus, not a great day for them. Letting the market close over 1160 on the S&P 500, albeit only by five points, isn't what they wanted. Solid day and a solid week for the bulls. Nothing spectacular, but one might say it was good in a grinding type of way. Back and forth, but up overall.

What was really good to see was how the high pole stocks continued to get taken down while the rest of the market found a way to hold up. So important to get those stocks down to near, or at, oversold levels on all their daily oscillators so as to wipe out the froth that's in these stocks for at least the short-term. Many of them on high poles and/or trading with P/E's at 100 or higher. When the froth in these stocks gets too stretched on valuations, and you add in violently overbought conditions, you have to recognize the risk involved.

They need to get taken down hard and that's just what's happening. The money that's coming out of these high-pole frothy stocks is moving in to other sectors. So good for the bulls when the money that's in the market rotates around, instead of just leaving completely. As long as this continues then you have to like the market's chances of moving higher in the near-term.

Now, please remember to keep an eye on the daily oscillators in both stocks and those index charts. They will soon get overbought on those oscillators, and thus, the market will need to pull back all over again. This should tell you not to get ridiculously bullish to the point of inappropriateness. There's always going to be times when the market needs to sell, and no better time than when those RSI's get to 70, or better, along with overbought stochastic's, etc.

With RSI's getting up there you don't want to get overly exposed to equities, although participation is the right thing to do. I simply want to warn against getting overly bullish when things look good. Nothing is straight up forever. It's not healthy if it does go straight up, thus, we can use the pullbacks to our advantage. Just remember to keep an eye on things and know when it's right to lighten up on exposure.

Even though we closed over S&P 500 1160 we're not officially on breakout there. I want to see at least a 1% clearance of any critical breakout level, and thus, I'll start to feel better if we can close above 1171. A close at 1165 is nice and feels good, but it really isn't good enough, thus, easy on the joy ride feelings you may have.

I'm not saying you should be disappointed. Far from that. Just that you should understand that we're not really on a true breakout yet. Good yes, but clear, not yet. If we do blow through 1160 then we can start thinking about S&P 500 1200-1220, but that's on hold for now.

On the down side, selling should be contained by S&P 500 1131. Below that we have 1115 down to 1113. 1113 is strong gap support and sits below the 20- and 50-day exponential moving averages. Only if we lose 1113 down the road should we feel bad about things.

One last thing. Those semiconductor stocks were all downgrades by Deutsche bank today. I hate that these big company's can be self serving and do what they want, and affect the movement of stocks and indexes. However, after massive gap downs in these stocks, some quite sever, they basically all printed beautiful reversals off their lows, which shows a change of character for these stocks.
In the past, when these stocks gapped lower, there was no recovery intra-day. Today we saw just that and this too shows more of the bullish action currently existing in the market. They are holding on to most of their recent gains. Good action for the bulls today on that front. This action, and so many other things I've talked about, has me still in the bullish camp with the understanding that it won't be easy and there'll be plenty of pullback's to come along the way.

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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