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Stock Market Back And Forth....

Stock-Markets / Stock Markets 2011 May 19, 2011 - 02:13 AM GMT

By: Jack_Steiman

Stock-Markets

Still no breakdown. Not close today. Close yesterday, but not close today. The first attempt at losing 1315 S&P 500 was met with strong buying off a 1318 low yesterday into today. The bears got close. They smelled success, but were thwarted away with relative ease. This is completely normal action as the bears will never break a market down at the most critical level of support on the first try. It can take more attempts than one thinks possible. So today we blasted up off the first test ,and now we're not even close to breaking down.


Losing 1315 would likely only happen on a major gap down, not intraday. The bulls defended where they had to, which is par for the course in a primary bull market, and that's what we're in without question. 1250 S&P 500 would still be within the norm of a pullback. The market closed well after moving up gradually throughout the day. Today saw a good bounce, but no one is really in control short-term as we meander back and forth. 1370 is major resistance and 1315 key support as we traverse up and down the wedge. No more than 15% exposure is what you should be doing here. Too much risk for more than that, so just keep it extremely light.

You look at the short-term charts when you look at how the first bounce off 1318. Did the bounce off 1318 show impulsive (strong) oscillator movement, or was it reflexive (weak move)? It's clear that it was an impulsive move up. This means that any second move down will be met with a strong positive divergence that will cause yet another bounce up in the wedge. Enough to make you seasick. It tells me that this market is probably in for a prolonged period of neither breaking out or breaking down. The daily charts aren't strong on their oscillators, thus, any breakout will form negative divergences. What's a trader to do!

However, the short-term charts are more favorable on any future selling, so expect this whipsaw to continue for a while longer at least. It may not be what we want, but this game isn't often about what we want. We'll just have to watch how things set up in the weeks ahead for more insight as to whether we break down as most seem to think we will. Very possible, for sure, based on the weekly charts, but you have to see it in a market such as this one is before deciding to get aggressive on the short-side. Anticipating is not easy. The bull is so powerful that before I'd get short I'd want to be certain the breakdown occurs with force.

The big headache for this market remains those index weekly charts. Such powerful negative divergences wherever you look. This normally suggests a strong pullback to come. Doesn't always happen that way, but normally it's what happens. Now, the weekly charts can work those negative divergences off when a market moves laterally overall over many weeks or months. Is that what's happening here? It's hard to argue that this process is occurring as we speak, but that doesn't mean this will continue. It's good for now, but at any moment, due to the size of those bad divergences, this market can finally take a strong plunge down.

So far so good, but you can't count on it staying this way. The good news from the daily index charts perspective is they have really unwound down those oscillators. Stochastics nearly oversold. MACD's back down to near zero. RSI's in the upper 40's. That's good action and normally what you see in bullish markets. Unwinding without too much price erosion. Now we have to see if the good action in the daily charts translates over time to the weekly charts, and allows the market to hang in there until those weekly's unwind enough.

The other major headache for this market has been sentiment. Very high readings on bullish behavior and very low readings on bearish behavior. The spread got as high as 41.6% more bulls just five weeks ago. It has been working its way down as the market started to consolidate. It started to move down a little faster as the market pulled back off the top. Today we got a nice surprise as the reading came in at 26.0%. That was 45.6% bulls and 19.6% bears.

The bulls are pulling in and moving towards neutral while the bears are still a bit too low. 19.6% is not really a good number for the bulls, but you can't argue with a reading of only 26.0% after dealing with 41.6% just five weeks ago. I would like to see the bears run up towards the upper 20's over time. A spread of less than 20%, or even 15%, would be a thing of beauty for the bulls. If the market can move laterally to down a while longer overall, those numbers should present themselves over the coming weeks. Sentiment is no longer a big deal, but more bearish numbers would be better.

Nothing to really add other than to say that you really shouldn't get too bearish, nor too bullish, for now as we meander in this wedge. The short-term doesn't look too bad, but I would not expect anything exciting to the upside either. Just keep things light, and respect that 1315 line in the sand should it get taken out by the bears.

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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