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Stock Market Handle, Handle...Tiring...Appropriate...

Stock-Markets / Stock Markets 2010 Dec 09, 2010 - 02:18 AM GMT

By: Jack_Steiman

Stock-Markets

You have to laugh at how these handles can drive you crazy. They take their sweet time playing themselves out, that's for sure. When those measurements were made on the S&P 500, Dow and Nasdaq, I warned you an extended period of time was upon us to unwind and cool things off. From that perspective it has not disappointed. It's well in to its fifth week with seemingly no end in sight. It tried to break through 1228 yesterday, the previous top, but failed due to some very overbought short-term charts. It can move down 3% to 4% at any moment in time just to frustrate the masses further, including your truly.


That's the nature of these handles. People start to think things will never get going again and then they do. Navigating through handles are complicated because sometimes classic technical analysis doesn't apply as easily. Just when it seems the breakout is coming, it doesn't. When it seems they'll break hard to the down side, they don't do that either. Not that you can't get through it well. It's just that you have to play a lot more appropriately. Some exposure always seems to be the right way to play because we're in a confirmed up trend. It's just that you have to tone it down until you get a stronger buy signal, or if it should happen, a sell signal. Bottom line is, we're involved. but not overly so for the moment. We'll get more aggressive when the time is right to do so.

Great news today comes from the financial sector where the majority of those stocks were higher, and the patterns in these stocks look fantastic. It doesn't mean we can count on them holding those strong developing patterns, but the patterns are positive and looking good, and thus, this is what we have to go by. They have been very untrustworthy in the past, but for now, they do look strong. If the financials hold up it's quite likely the market will hold up as well. The market has held up well without the bank stocks, along with the other financial stocks, so it would be a huge positive for this market if they all decide to get a real bid and blast out of their current bases. The old saying when the financials are strong, so too will be the market, definitely holds true.

The exponential moving averages are continuing to play catch up with current prices, and that's more bullish than not, as buyers love to come in and buy 50-day exponential moving average tests. The higher up the 50's move the less selling is available for the bears before the buyers rush in. Handles allow this to happen as price often stays closer to the top of the range due to the fact that the market is in an overall up trend. Markets can launch higher off these 50-day tests, so it's a real positive for the bulls here.

These moving averages are particularly powerful in these types of markets because they haven't been tested in a long time for most stocks and indexes, thus, any move down to them opens the door to a strong move up. Good action on that front. The S&P 500 has moved to 1185 on the 50-day exponential moving average, which is where the top of a gap lives down to 1180. 1186 is the top of the gap, thus, this area is powerful support on any selling action. May never get that low. Just saying that if it did go down there it would be huge for the bulls as a support zone.

An intraday move over 1235, the most recent high on the S&P 500, would be considered a breakout, but a real breakout occurs when it can clear the previous 1228 high by 1% on a closing basis. 1240 would be where I'd be happy and consider the market on breakout once again. For now, we play the best base set-ups and let them play out over time. Keep it simple. Know we can pull back at any time, but also know the market is healthy overall. Give these bases time to play out.

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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