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Stock Market Bulls and Bears do Battle at S&P 1325

Stock-Markets / Stock Markets 2012 Feb 02, 2012 - 01:49 AM GMT

By: Jack_Steiman

Stock-Markets

The bulls are trying, but so are the bears. The bulls are doing their very best to move the market through S&P 500 1325. The bears are drawing the line in the sand with one intense fight. They are telling the bulls that, although things are moving upward, getting through 1325 will require a lot of work. There have been two attempts now to get through 1325, but both times we've had churn, not a run through, and beyond. That's the bears doing everything humanly possible to hold things down.


They know that a move cleanly through 1325 will cause somewhat of a melt up in the averages, and that means bad news for them as they'll be forced to add fuel to the run higher by buying back their short positions. There are still quite a few bears in this market as evidenced by the bull-bear spread to be talked about later in this note. The bears are trying to pool their collective efforts to keep it from getting out of hand for them. If a key down-trend line is captured, the bulls will get braver as well. That's why the bears are working so hard to keep things down below 1325.

Today we had the gap up based on overseas economic news. We got to 1330 only to see it fade as the day wore on. We closed just below 1325. 1333, the previous high, so today fell a drop short of that. Good effort by the bulls today, but once again the bears did save themselves from the worst case scenario, with a late day push lower, although it wasn't very forceful to say the least. The bulls are on the precipice of something special, but please keep in mind that, until they forcefully break through 1325, you shouldn't get overly bullish or excited. It's fun to think about it, and it's easy to say it's in the bag, but it's not. Until it is, so keep that in mind before getting inappropriately aggressive.

The bull-bear spread came out today, and showed a bit more bearishness from those bears, and a little less bullish fever from those bulls. Each side going the other way by roughly one percent, which allowed the spread to go from 21% more bulls to bears two weeks back to 19% at the close of last week. That's perfectly neutral, and to be honest, it's surprising that the spread hasn't gotten higher to this point. Some of that can be equated to the fact that there are less people playing these days, and the fact that folks are still quite jaded from the bear markets of the recent past. Once the spread gets to 305, that's a red flag, although it's still not too many bulls. Just a heads up, so we're far enough away from that to say sentiment is not a problem in the here and now. I don't know what it would take to get the spread up to 30%, and then to the real red flag at 35%, but we are far enough away at this point in time to be able to say it's no problem. The market will deal with real fundamental problems that could derail things, but sentiment is not a problem for now. Good to see that fear is still out there to some degree. The bulls always need that in their arsenal.

Cycling around. That's what the market is doing in order to protect itself from falling too hard. The bears are always looking for places to knock stocks down. Normal behavior, but the job is getting tougher as the market is finding a way to hang up there, but simply moving from sector to sector. As one gets overbought, they allow it to cycle lower in order to reset the oscillators. Once it's no longer overbought the bulls rush back in and keep it trending higher. It really doesn't matter where you look. The results are pretty much the same. Most sectors are in bullish patterns, whether it's a more defensive area of the market, or a more froth-type area. It's very interesting to see sector after sector hold with its daily RSI at 50, or higher. It's hard to get any sector to move far below 50 on its RSI. That's a sign of real health. The longer this process continues on, the more frustrated the bears are likely to get. It's the game of emotion playing its role. When a given side gets too frustrated, that's when you get a strong breakout move or breakdown move if things are on the bearish side of the coin. The health of the overall market can be seen in the health of the majority of the sectors from all different areas of the stock market world.

The market is overbought on many of the index charts, and almost overbought on the few that are not, such as the Dow and S&P 500. Markets can stay overbought if they want to, especially at breakout junctures. It's not impossible, therefore, for this market to go higher for a while longer before a more sustainable selling episode kicks in. However, be aware of the reality that at any time we could pull back a lot more than you'd like to think possible. If we dropped to S&P 500 1267, or 5% lower from here, that would still be bullish in nature. Let's see if we can break out and stay overbought, but be prepared for a pullback from overbought, so you may not want to get overly aggressive for the moment. Some exposure is definitely appropriate. It's really all about who wins the 1267/1325 showdown. Looks good for the bulls but you never know so be careful.

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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