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Stock Market On The Precipice...

Stock-Markets / Stock Markets 2011 Oct 23, 2011 - 02:03 AM

I know it seems impossible for this market to keep going higher, and maybe it won't, but the S&P 500 is trying to break through its 200-day exponential moving average at 1234. It's ever so close to forcefully breaking through, and has yet to do so, but the overly bearish sentiment is taking hold for now, whether the market deserves to go higher or not. The bears don't want to see the market move higher from here, because the next level of resistance would be the triple bottom breakdown level of 1260 on the S&P 500.

Besides that, just breaking over 1235 allows the market to use the 200-day exponential moving average as support on any selling back test. It would be bad news for the bears for the S&P 500 to break forcefully over 1235. That's the best way I can put it. A lot of whether it happens, or not, is based upon what comes from Europe over the weekend and early next week as they decide on whether it has an answer to the ills that inflict it. Greece, and others, really close to defaulting.

Merkel from Germany, and Sarkozy from France, will be getting together as they try to figure out a way to prevent the unthinkable from happening. The unthinkable being defaults that would crush the worldwide financial system as paper is held globally against Europe. We're going to find out soon enough about whether there is a solution, or not, and that will have an enormous effect on the stock markets around the world come early next week. With the action over the past few days so positive on just the thought of a solution, you can only imagine what a real solution would do for the world markets. I don't think it would be a sell the news situation although one never knows for sure. A solution, even if it's just a short term one, would likely be looked upon favorably as it buys time to find other solutions. The market is close to surprising the masses. No guarantee we get that surprise to the upside, but you have to recognize that it is possible based on where we closed today.

What's not being talked about these past few weeks very much is how the economic reports are coming in here at home. They are better than hoped for. The Philly fed was a very nice surprise yesterday as it came positive after some very bad readings the previous few months. The housing numbers are starting to come in a lot better than had been predicted. Most reports aren't too bad. A lot less in terms of being recessionary than we probably thought they would be. The real question is whether the news is sustainable, or not. Most think the news will deteriorate sooner than later, and that may become a reality in time, but for now, we're not seeing anything in terms of deteriorating conditions. I know the problems are still out there big time, but you have to start somewhere. For now, we are seeing some improvement over the past month, or so. We can only hope that the trend will continue for a lot longer than anyone thinks possible. The next big event will be the ISM Manufacturing Report coming out on November 1st. If that number can start pulling away from 50, the line that measures the difference between expansion and contraction, the market would likely start to think things really are getting better. That's the big one in a week and a half.

The really good part about this rally is that the leaders aren't really leading, but the market is moving up strongly anyway. Apple Inc. (AAPL), Wynn Resorts Ltd. (WYNN), Baidu, Inc. (BIDU), International Business Machines Corp. (IBM), Lam Research Corporation (LRCX), eBay Inc. (EBAY), Amazon.com Inc. (AMZN), and many others are just not participating. Heavily weighted leaders just aren't leading. You'd think, based on this fact, that the market would be falling hard. It's excellent to see the rest of the market picking up the slack. That's bullish action. When the leaders aren't leading, but the market is moving up, it's hard to make a bearish case. I'm not suggesting this means all is well with the market. I'm just stating that it's excellent action to see the rest of the pack picking up what's missing from the heavily weighted leaders. At some point those leaders will heal up, and when that happens, it could lead to even better gains for this market. It's hard to know how long it'll take for those leaders to get themselves healed up, but it usually doesn't take too long when a market is holding up well for those stocks to get back involved.

The charts tonight tell the story quite clearly. Spend a good deal of time looking at the set-up on the chart of Germany. It's very close to making a strong move to the upside. Trend line is right here. If there's good news over the weekend it will break out. If it does it will carry our markets with it. Our stock market trades directly off the German futures early on each morning. We are very tied into Germany and the rest of the action all over Europe. The charts show overall bullish possibilities, but don't take it for granted that it'll work out in a bullish fashion. The possibilities are there, however, so let's see if we can get those breakouts. It will certainly take the masses by surprise, that's for sure. The masses are still overall bearish, and that's what gives the market some bullish short-term possibilities.

We're at some interesting levels here folks. We watch 1235, and if that goes, 1260. It doesn't seem possible that we can get up there. However, most didn't think we'd get this high. You never know. You let the market talk and guide us. Let's see how 1235 gets dealt with, and if it goes, it gets very exciting and interesting in the world of the stock market.

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 constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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