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Stock Market Through 1278 SPX....

Stock-Markets / Stock Markets 2011 Jan 13, 2011 - 03:15 AM GMT

By: Jack_Steiman

Stock-Markets

The market has been gravitating higher slowly but surely, no question. Over the past many weeks it had set up shop between the gap top low at 1262 and the 1278 as its high. A few tests down at 1262 looked like a breakdown was finally upon us, but that was not to be. There were many test back up to 1278, but failed as well, so it became a chess match between who would make the move first. The bulls pulled off the move today. It wasn't a shocking move higher as we're barely above 1278. Slightly less than half a percent above, but we are above, and that can't be denied by anyone. This opens the door to a move up to the top of the trend line at 1300 on the S&P 500. That chart is there for your viewing this evening. It seems as if this market doesn't waste a point. Although, by no means a guarantee, if the trend line is open to approximately 1300 on the SPX, it seems as if it will find a way to make it there, even if it doesn't hold once it does get there.


We started out with a gap up today. That gap was made possible by some excellent overseas action, first in Asia, and then in Europe, particularly in Germany. After we gapped up we spent most of the rest of the day trying higher after a small pullback early on. We closed a bit off the highs, but nothing to get too worried about. We closed above the open prints and that's what matters the most. Solid action in to increasingly overbought conditions. The bears have to be shaking their heads in disbelief and who can blame them.

Sentiment is now a very real issue for this market. Unfortunately, for the bulls, all this bullish behavior and action has really juiced up the average investor. The bulls are ramping in numbers. We now have a spread of 38.2% more bulls created by 57.3% bulls versus 19.1% bears. Ouch! That's getting a bit out of control. In addition, we now have the daily and weekly charts getting well up there on their RSI's. Well above 70 in many cases. On top of that, we have the NDX monthly chart at 70 RSI. Red flags abound in terms of overbought and sentiment. In time, the market will snap down, but as always, you have to stay with the trend until you get the proper bearish reversal stick. Anticipating the reversal hasn't worked. It means you will likely get caught in a play, or so, but how can you not stay long with a trend that's as powerful as this one! Stay with it until it breaks is the absolute best advice that I, or anyone else, can give folks. Just recognize that the risk in this market is no longer high. It is EXTREME!!!

The market strength is great for this reason. The strength is everywhere. In many markets that are trending higher you get one or two sectors out performing. It's rare you get strength across the board, and it's also bullish because you are getting constant rotation. If one sector gets overbought it slowly, but gradually, unwinds its oscillators, but the money will then rotate in to other places throughout the stock market world. That's the sign of a truly healthy bull market. It's also not as if just a few stocks are carrying the day. There is strength within every sector. Stocks are running up throughout.

The market is very healthy from a technical perspective, but we do have to deal with what I just discussed above with sentiment. But again, make no mistake that this is a healthy market. You can call it frothy, and I wouldn't argue, but that's not what matters. It's about price action, and the action says things are good, whether it's appropriate from a fundamental perspective or not. Don't get emotional with what's taking place. That's the recipe for a rough time trading.

The bulls are gathering amazing strength at S&P 500 1257/1262. There is the top of the gap at 1262. There is the bottom of the gap at 1257. Then there is the 20-day exponential moving average at 1260. That type of confluence of support will make it very difficult for the bears to get much more than a 2% pullback at least initially. It'll take a lot of time and work to get this market to trade below 1257. If the bears can do that then they can work on getting things lower, but because this bull market is well above the 50-day exponential moving average, and because you have so many gap ups in the pattern, nothing will be easy for the bears, even if they can get this market below S&P 500 1257.

With the news, so far, coming in very good in terms of the economic reports, the bears won't have an easy time getting anything accomplished.

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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