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Stock Market Sentiment...Daily Oscillators Lead To Rally...

Stock-Markets / Stock Markets 2011 Aug 30, 2011 - 01:51 AM GMT

By: Jack_Steiman

Stock-Markets

There are times when events take place that are predictable to some, but not at all to others. Take the stock market today, for instance. Not many understand the rally today, nor what will happen in the days to come. It's based purely on two events. The bull-bear spread, and the 21-day put/call levels, are bullish. Simply too much negative sentiment out there short-term.


The other factor is the daily index oscillators. The MACD's are deeply compressed down and now just making bullish crosses. That usually leads to some further upside action in the very short-term, and this allows the oversold conditions to unwind back up, so if the bears fight again, they'll have the energy to do so. When MACD's cross from lower levels it's very hard to get sustained downside action. So, today's move up is likely to lead to more gains, but it does NOT mean gains every day. There will be down days before this rally tops out. It just means sustainability won't be an easy task to successfully accomplish for the bears short-term.

It also means don't get carried away with going overly long. Some exposure is fine, but too much makes little, if any, sense as the market could implode on the wrong news that's potentially out there. Anything from a country failing to a major bank nationally going under. When this type of news is sitting over the markets head, it's best to keep things light. Not to get involved with longs that are frothy. Also, it tells you to be happy if you can get gains, but don't get greedy, like buying too many 2x or 3x ETF's. A 1x ETF makes sense, or again, non-high P/E stocks that would handle the wrong news without getting torn to shreds.

So for now, the combination of daily MACD crosses from low levels, along with sentiment, should hold the market up for a while to come. But keep in mind the market is still more bearish bigger picture.

The gains were across the board today. That's good to see because it tells us the advance-decline line was very strong. That's critical in bear market rallies higher. It should have a little staying power and likely not be just a one-day event. If too few stocks were contributing to the move higher it would suggest this rally has no chance to continue much longer. It's across the board as far as I can see, and that's the way it needs to be for the bulls, if this rally wants to get up to the 50-day exponential moving averages. More on that later on in this report.

When small- and mid-cap stocks join in on the gains, it's good news because it also shows the focus isn't on just the Apple Inc. (AAPL) stocks of the world, but that buying interest was everywhere. That folks thought there were good bargains across the board. Traders and value players joining the party. So, while for now, this can only be taken as a bear market rally, at least there are some signs that it should go higher overall. Not every day for a while longer.

Those bank stocks even look good right here. Hard to believe that's the case, but every once in a while they look good, and now is one of those times. Likely to continue higher as well a bit longer as the MACD has made a strong cross up. Everyone on the planet is waiting for these stocks to lead the way higher to a bull market that won't quit as they have lagged most of all. I don't think we're close to that reality, but the daily chart is telling us that some better action is likely over the very short-term.

The same can be said for the other laggard in the group, the semiconductor stocks. Like the banks, the MACD is crossing up in a way that suggests some further upside is likely in the very short-term. None of these signs are suggesting bigger picture nirvana. Not by any means. So, please, don't confuse the short-term with the bigger picture. For now, I would suggest staying away from the short side on these stocks. You can visit them again in the future.

Things will get very interesting on Thursday and Friday. On Thursday we get the critical ISM Report on manufacturing thirty minutes into the trading day. It was the last one that took the market down hard when we had a near contraction reading of 50. Anything below 50 is recessionary. Then on Friday we get the other critical report for the stock market, the Jobs Report. Plenty of action is dead ahead this week. If you like volatility, you won't have to wait long. If the ISM Report can notch up a drop to 51, or even a bit higher, the market would love it for the short-term. However, if the report comes in showing contraction, the rally will hit a wall and rightly so.

To me, that report seems to be, by far, the most important report. The market will be reacting to it for the foreseeable future. The market seems peaceful for now as long as it doesn't have to deal with recessionary reports. It wants to rally a bit further, so we'll see if that report allows for a deeper move upward short-term. Once those two reports are over, the market will be trading off what it saw from them.

The market is in bear market rally mode. But I must warn you about getting too aggressive on the long side when trading against the bigger picture trend which remains down. I think a move up to the 50-day, or even the 200-day, exponential moving averages are possible. Volume remains light on gains. Be careful. Don't get too aggressively long folks.

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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