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Stock-Markets / Stock Markets 2012 Aug 11, 2012 - 06:49 AM GMT

By: Jack_Steiman

Stock-Markets

I have a good time listening to debates. It's always fun to hear the emotion pour out of people as they express their opinions on the stock market. I guess the prevailing view is, it's only a matter of time before this market is doomed to crash out. I wonder about that. Fundamentally I have no argument with that logic. After all, Europe stinks. Our economy is not as bad, but it stinks as well. Debt and foreclosures are everywhere. More and more folks are losing jobs. Our manufacturing sector is in contraction and pointing to recession.



Yes, that's enough for me to agree with them all. There's one tiny problem. They are not taking into consideration the power Mr. Bernanke has over the entire stock market. The responses from these people are, it doesn't and shouldn't matter. Problem is, it does matter. As long as the Fed is out threatening to protect the markets, it doesn't matter if he does. He continues to pump money throughout the system, and as long as he holds interest rates near zero, I think these folks aren't seeing the bigger picture here. The Fed is more powerful than debt. He's more powerful than the threat of the Eurozone going under.

He's more powerful than your emotions. His job is to keep Wall Street alive so Main Street remains alive, and he'll do just about anything under the sun to make that a reality. He doesn't want more people unemployed. He doesn't want more people on welfare and food stamps. He doesn't want more people to be forced in to foreclosure. He wants peace and success, and the only way to do that is to, basically, force folks to stay the course on Wall Street through his actions. It's working. There is no good reason for this market to be holding up, but it is.

Can something come along and ruin his party? Yes. If Europe completely goes down from a financial crisis not yet here, down we all go together, Fed action or not. He'll still try, but it won't work. However, in this moment, that's not taking place, so don't fight what is in place. The Fed is doing his best to keep the system liquid, and force the average person to stay the course with stocks. The interest-rate plan alone is doing enough to keep that going. Bottom line is, don't fight the Fed. Market is holding just fine for now.


When studying the markets we try to find clues about what may be coming down the road. The best place to look is in the area where all of this mess first began, the financial stocks. They had a very long run to the down side, and got hit the hardest when the market was in bear mode. No one wanted to go near them. I'm being kind to say it that way. They held the biggest risk as financial disaster was upon us all. When studying the longer-term charts on those financials now, you can see that there's nothing bearish technically. They aren't perfect by any means, but through all the nonsense going on overseas, it's good to see how well they're holding up. They hold the biggest risk if things fall apart there, yet, they are acting well enough to tell us nothing imminent is upon us that will destroy the market.

Those may be the famous last words, possibly, but I can only go on what the technicals are telling me. Anyone who takes the time to study these stocks can see that they are more bullish in their set-ups. Not wonderfully so, but more bullish than bearish. Only when those financial stocks throw in the red flag technically, will I start to get more bearish from a technical perspective. Does the market see a positive resolution down the road? I can't say yes with certainty, but you have to wonder what in the world is holding these stocks up so nicely. Never fight what you see is my mantra. If they turn south technically, I will adapt to it, but for now, the financial stocks aren't bad at all.

The market tested great support at the 200-day exponential moving averages four separate times a few weeks back, but the bears could not take that key support level out with any force. A few breaches below along the way, but never anything powerful in terms of price or volume, which is necessary as a confirmation when you're taking out such strong support. After four failures, the bulls took back control of things and started the journey back up. Now the bulls are closing in on taking out massive resistance at the gap down top or 3025 on the Nasdaq 100. If the bulls can fight hard enough for long enough they can get the job done, although it only matters if they do it with volume.

You want to see big money come in when things break out or down. Since we took out the gap bottom at 3000 the other day, we are trying to hold above it as the oscillators recycle. Not bad action for the bulls. News can always come along and ruin the possible party, but the bulls are getting close. Close is not good enough. You need to see it, and you need to get the volume. If that happens, the bulls are on their way. With many of the sixty-minute charts unwinding, it's getting interesting, but we will see what early next week brings for everyone.

For now, you can play some long exposure, but don't overdo it. Things are more favorable now, but you don't want to front run the move in case it never happens. Ask the bears about those four failures at the 200's, when it seemed like a slam dunk it would go away. Nice and easy as we weave our way through this mess.

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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