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Stock Market Rally is Tired...

Stock-Markets / Stock Markets 2010 Nov 02, 2010 - 05:10 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleAren't we all! The market is. Doesn't mean it can't continue to try to grind higher even though it's ready for some deeper selling, if that catalyst would just make an appearance. The ISM Report today had that chance, however, it showed more expansion than any thought possible. We had some early reports on what to expect when the voting is over on Wednesday. It shows the market will be getting what it wants. No catalyst there. Only catalyst here is the overbought and tired nature of the market, especially the Nasdaq stocks. It wants more to rock this thing down.


The next opportunity comes on Wednesday when the Fed tells the world about how things are going in our economy, and what he intends to do in terms of flooding our country with cash. Up to the tune of two-trillion dollars, potentially. What he actually gives could be that catalyst. Or not.

Then we get the Jobs Report on Friday, and that, too, could do the trick to get us to sell off harder. Or not. There are potential events out there to get us moving lower, other than overbought high poles these stocks are not. If that's all we end up having then the pullback will be very shallow.

We started off with a strong gap up today based on those early poll results. Market liked what it saw in that more clutter is good for Wall Street. It took a second leg up when the ISM came out showing beautiful expansion. The Nasdaq hit its April highs. That was it. Reversal time, and it was sharp and quick. In the end nothing bad. Not bad in terms of actual final closing numbers, but the reversal was there at the April highs, which will be tough to get through short-term.

Not a bad close as the Dow reversed losses and closed up fractionally. The S&P 500 did as well. The Nasdaq down a tad. Not a great day for the bulls, but not a great day for the bears either. No great plunge. Just a short-term top likely to be in place for a while longer. The bulls should not put their heads down here thinking it's all over. Patience will be needed based on the reversal.

Once again the financials stunk. No better way to say it. They just can not sustain a bid for more than seemingly a few hours. The moment the bears come in they rush to those stocks. The foreign financials are solid. The United States financials are poison for now. The KBW Bank Index (BKX), or the proxy for the banks, was terrible today. Bank of America Corporation (BAC) and The Toronto-Dominion Bank (TD) were up ever so slightly today, while Bank of Montreal (BMO) was down slightly today. That's just an example of how things are with financials.

It doesn't mean the whole market has to give it up. It does mean that you should avoid, as much as possible, these plays for the foreseeable future. Until they start to flash daily positive divergences, or clear through their 20- and 50-day exponential moving averages, they aren't worth getting in front of for now. Never fight the trend in place until something technical tells you that trend is now over.

1147 S&P 500 is the 50-day exponential moving average. 1171 is the 20-dayexponential moving average. It would be no shock to see the 50-day get hit since that's normal protocol. At some point it will get hit, even if it's months down the road. 1147 is only 3% away, but that's nothing to get upset about. If you're holding too much exposure it won't feel good. I get that.

You should always have some exposure in a confirmed up trend. You just shouldn't have too much when markets are such as they are now. We can keep grinding up if the news in the near-term is strong. If we do pull back now, then some pain will be there on any longs being held, but they should all come back once the selling is over near the 50-day moving average. The best way to move along short-term is by not getting overly involved.

Wednesday will be fireworks day. Not only do we get the election results, but more importantly for the market, we hear about QE2. All the market wants to know is how much quantitative easing will we get. Really, though, who knows what the market wants. Will less easing actually be construed as good? Not as much needed because things are getting better? To the contrary, if the market does get one trillion dollars plus, does it necessarily mean that's good? Is that a red flag that things are still really bad underneath the surface? There are a lot of unknowns, but I can tell you one thing. It won't be boring.

Also, you wonder just how much the market wants to sell in front of the biggest of all reports, the Jobs Report on Friday morning. This is the biggest of the big for the week. Interesting times as most seem to think all of these reports will be the beginning of the end for this market. If it sells, I believe it will be a great opportunity for some great long plays in the not distant future.

I try to convince people that selling is a good thing from time to time. It's a necessary evil to get things set up as long as things don't break technically. I don't think they will. I believe the 50-day exponential moving averages will basically cap the selling. We can always breach, but that's not a big deal. I would welcome some deeper selling, but I don't always get what I want. Just try to understand what's taking place and not panic. This bull run needs a rest, but I do believe there's more to come once things settle down. How nice it would be, in the meantime, to get things really unwound so we can get some plays cheaper and at proper oscillator readings. The risk reward would dramatically improve.

Slow and easy here.

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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