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Stock Market Holding Up Very Well.....

Stock-Markets / Stock Markets 2010 Oct 23, 2010 - 09:18 AM GMT

By: Jack_Steiman

Stock-Markets

It's an old story already. The market remains in its confirmed up trend that has been in place for several months now. The bears keep thinking the story is over, yet the market keeps telling them otherwise. The moment we see some selling, the bears rush in as evidenced by the big spike in the put-call ratio. This tells me that the thinking is still waiting for something very bad to take place. The other day, when the market was down quite a bit we saw the put-call trade over 1.0 for the entire day, including a reading of 1.35.


The index side of that trade was actually as high as 5.0. Unheard of and it didn't take long for the market to recover from this quick round of bearish behavior. With the bull-bear spread only at 23.1% it's still not at levels that the bulls have to be fearful of. Admittedly, it's no longer on their side as a trade, but it has yet to get overly bullish, thus, the bulls need not fear that there are too many bulls in the market. The market is simply trading on other issues.

The market has been getting more overbought on those daily charts lately and seems to be a bit tired, although, certainly not in bad shape. Tired is different from technically bad. It simply means a period of lateral action may be upon us, and that is really what the market needs. A period of lateral consolidation affords this market the ability to unwind overbought, or now near overbought, oscillators from the RSI's to stochastics to those MACD's.

The lower they go off the top the better it is for future moves to the up side that are sustainable. Markets can stay overbought, as we know, and they do stay overbought far more often than they stay oversold. If this market wants it can race higher and simply stay overbought, but it doesn't feel that way to me, although, there is still that 1220 S&P 500 target still in play down the road. Again, some lateral action first would be best.

The financials continue to lag badly, but have yet to take out their recent lows, except for Bank of America Corporation (BAC), ,which seems to be in some pretty deep water right here. Lots of headaches as the stock took out those recent lows on good volume suggesting big money wants nothing to do with it. This is a financial leader, so it makes you wonder just what is going on that we don't even really know about yet.

If Bank of America starts to fall harder it's difficult to imagine the rest of the sector not feeling some of that pain. I guess it's always possible for it to be stock specific to Bank of America, but that seems unlikely since their problem is basically the same problem for all the other banks. Something for me to keep an eye on and I will as this makes me nervous.

On the positive side of things, however, stocks like Goldman Sachs (GS) are behaving very well, and Citigroup, Inc. (C) has yet to break, thus, there's hope for the sector, just not anything great to talk about at this moment in time.

The semiconductors continue to behave very well with bull flags all over the place. Since bull flags are normally continuation patterns, it gives real hope that they'll break out on the level that many other sectors have over the previous few months. If the semiconductors continue higher and the financials don't, this would at least allow the market to continue to grind higher for a while longer. Ultimately, we will need the financials to really run up through the months ahead, but the semiconductors can really help things out for the short-term and things do look good technically in that arena for the short-term.

Great support comes in on the S&P 500 at 1160 down to 1135. Moving averages and horizontal price support all along that twenty five point spread. The Nasdaq has great support down at 2425. It seems that when an index gets a confluence of support together at one level, it makes it extremely tough for the bears to get through it. The bulls are using the moves lower down to support to start buying all over again. Great action for the bullish case to try to extend itself further still. We are long stocks and will continue to be long stocks as long as the message remains the same from a technical perspective. 1220 S&P 500 is massive resistance and I think that's possible over time. Always pullbacks 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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