Financial's Break.... Stock Market Holds....

Stock-Markets / Stock Markets 2010 Oct 16, 2010 - 03:39 AM GMT

Best Financial Markets Analysis Article We have a bear market within a bull market. Unusual but true. The financial sector is in a bear market again as it loses all its critical moving averages. Some stocks in the sector are outright scary such as Capital One Financial Corp. (COF), Bank of America Corporation (BAC), Wells Fargo & Company (WFC), and JPMorgan Chase & Co. (JPM), to name just a few. Take a look at those daily charts if you want to have fear put in to your head. Nasty breakdowns everywhere today in that world of stocks, and on huge volume to confirm those price breakdowns.

The stock market bears will tell the bulls that this is a harbinger of things to come on the dark side. That with the banks breaking down and as a leading sector, the market has no choice but to fall hard over the coming days, weeks and months. I'd be holding back the truth if I said they didn't have at least a point worth talking about. When the financial stocks die, it usually follows that the rest of the market will. However, there is something unique going on here. The rest of the market is acting as if a bull market has kicked in and will not let go. It's the strangest set of circumstances I can ever remember seeing in the stock market. The way the rest of the market held up today is unbelievable.

In the dark days of financial's past, a day like today would have had the Dow down 300-500 points with the Nasdaq down 75-100 points. The Nasdaq held its ground, thanks mostly in part to gains from Apple Inc. (AAPL) as usual, Amazon.com Inc. (AMZN), and Google Inc. (GOOG), which was up 61 points on their earnings report from last night. The technology bull market holding up against the financial bear market. Money simply has moved around. This is normal in good times, but abnormal when the sector leading down in a bear market is the financial's. Interesting times that have a red flag wrapped around it. Even though we held up today, you still have to give great respect to the fact that the financial's are now back in a bear market. I'll be monitoring this very closely day by day for more red flag signals based on market behavior.

There are really only two sectors in a bear market right now. The financial's I've spoken about, but you have to add in how nasty a bear market the school stocks are in. Apollo Group Inc. (APOL) warned the other day and the stock was absolutely annihilated. No guidance will be given for 2011 things are so unclear there. Strayer Education Inc. (STRA), Career Education Corp. (CECO), and all the other players in this sector were taken out and killed as well. Across the board bear market and that's important because many times a stock within a sector can be in a bear market while the others hold up well. Not the case here as all of them are now in bear markets.

Other than that things are good, especially when we focus in on some unexpected sectors. Who would think retail, in this economy, would be in a bull market. But it clearly is, along with goods being transported around the country, which is allowing transports to rock. Commodities and technology are in screaming bull runs. All over the place its bull market after bull market. With the economy supposedly in terrible shape, it's so interesting to see retail stocks reporting such good numbers lately on same store sales. It seems that folks still have that desire to spend to make themselves feel good. As long as that holds up, and there's no sign to the contrary, we will continue to see surprises abound for this market.

When we look at the daily index charts there are inverse head-and-shoulder bullish patterns all over the place. Much of these pattern measurements have played out, thus far, but not totally. The S&P 500 measures to 1220, which is also the April highs. The Dow measures to roughly 11,400. When these patterns break they often make their full measurements. They don't have to, of course, but once well in to their measurements they make it all the way up.

This leads me to believe that through the normal pullback's the market has a decent shot at making it up to 1220 on the S&P 500. The closer we get to this level the more you'll want to start pulling back on your bullishness. It'll feel better and better as we get higher and higher, but if we make it to near S&P 500 1220, you'll want to slow down on your bullish exposure. At the very least you'll see a longer period of lateral consolidation to unwind things if not a large pullback to refresh.

If you watch closely, you'll notice that every time we break through some resistance, that level becomes very strong support on pullbacks. When we finally took out 1131 the market tried twice to give it back only to see it hold when things liked dire. Same held true when we got through 1150, and then once again at 1160. Until this pattern of holding support starts to break you have to keep giving the benefit of the doubt to the bulls.

The bears need to be able to change what exists. The onus is clearly on those bears for now to make the necessary changes to reverse the trend in place. With the 50-day exponential moving average rising on the S&P 500, it'll be at 1131 within a day or so. We all know how strong 1131 support is on price, thus, 1131 will be incredibly tough for the bears to break with the 50-day exponential moving average joining price. Only if we lose 1131 would I start to feel as if the bears are taking back this market. We travel through the maze day by day, and for now things are still bullish overall, but once again, we must remember that red flag coming from the world of the financial's.

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.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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