Stock Market Holds Up Despite Terrible Jobs Report

Stock-Markets / Stock Markets 2010 Dec 04, 2010 - 06:05 AM GMT

You have to scratch your head in disbelief. How can this market hold up with such a terrible Jobs Report? The jobs created were basically 100,000 below expectations, and the unemployment level ran up to 9.8% when 9.6% was expected. The futures reversed only 75 points lower on the Dow, which to me, was a miracle unto itself. I thought a 300-point reversal was imminent. With the market hanging in there very well up to this report, it seemed that a major disappointment was the tonic the bears needed. The market refused to cave in. The gap down was quickly stabilized with the market slowly working its way back in to the green as the day rolled on, especially late in the day as the dollar fell hard late. A real surprise across the board, but the market is focused on other things at this point and thinks it sees good news at the end of the tunnel.

What it sees now is not what it seems to be seeing in the future. The market never reacts to "what is" very much. It responds to what it believes will be. Who can argue with that. You just have to play whatever the message is, and for now, it's saying the future isn't as dim as some may believe. I can tell you, I have no opinion worth speaking of. It's not about me. It's always about the message of the market. The market spoke loudly today. It said it wants to remain in this triangle and not break down out of it, even with the worst possible news hitting and believe me folks; this was the worst news for the United States. It's all about a recovering economy, and thus, about job creation, and today the market said something good is out there down the road we just don't know about yet.

When a market is in a large triangle such as this one, it causes great difficulty for the majority of people trading it. This is because there are lots of head fakes both ways in the pattern. Lots of moves higher you think will continue only to see them fail. Lots of moves lower you think means we're about to get smoked. Then that fails to work out as swell. You tend to get head faked to the point of making bad exits on your plays, especially if you have too many of them. This is why you play lightly in markets such as these. You try to pick good bases that over time will have a chance to work out to the up side. Only if the base breaks down do you need to exit. You deal with the whipsaw within the bases and you try not to get shaken out. That's your best chance of doing well. This way if you're down a few bucks on a play but it's still within the base, you'll hold, but only if you're not in too many other plays. In market such as these, some exposure is appropriate but a lot is not.

The financials have been the big headache for this market, but it's very interesting to see that dead stocks such as Bank of America Corporation (BAC) are printing huge positive divergences on their daily charts from well below the 0 line. Not just a small one but absolutely huge. It has made a strong move off of this divergence, thus far, in the past few days, and should continue a bit higher overall in the next few weeks, if it plays out fully, which I think it will. This move up allowed the Direxion Daily Financial Bull 3X Shares (FAS) to close back over the original breakout that was lost over time at 24.00. It does not mean that the financials are ready to blast off, but it does hold some promise for this awful performing sector in the weeks ahead. Some of the other financials such as Citigroup, Inc. (C) and Wells Fargo & Company (WFC) also have promising charts. Let's see if the financials can finally get out of their own way in the weeks ahead. Still nowhere near my favorite area to be involved, but not bad for now.

The market has tested down to those 50-day exponential moving averages but has found a way to hold for the time being. There have been two tests, and for now, the bulls have held their ground. This market could lose their 50's a bit and still be in good shape. As long as the move below isn't too intense. With the market hanging in on bad news this gives hope that as we move about in this triangle it will be able to hold those 50's. But only time will tell. Defaults of individual countries in Europe now appear to be the markets biggest problem. If that problem gets put aside then this market just may be able to breakout with only a little more than a one month triangle pullback. That would be fast and somewhat unusual, but I won't argue if it does happen sooner than later. Normally these things take multiple months before they get going again. That's if they get going again I should add but you'd expect at least a few months of lateral action first. We shall see.

So for now, we trade between 1171 to 1176 with a top at 1228. You should know that the short-term 60-minute charts are overbought with RSI's in the lower 70's. A pullback of 10-15 S&P 500 points can occur at any moment. Buying good base set-ups on weakness, if possible, is the best to proceed with things for now. The bigger picture up trend remains in place for now.

Have a great weekend and play with a child if you get the chance. It'll make you feel great about being alive.

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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