Stock Market Support Holds...For Now...

By: Jack_Steiman

The markets sold hard for a couple of weeks and when they hit the 50-day exponential moving averages on the key index daily charts they found a way to bounce which is not a great shock since some short-term charts got oversold. The combination of those 50-day tests and oversold sixty minute charts gave us a nice bounce. The real question on everyone's mind is whether the market has seen the lows from this correction or whether there's more to come once this bounce is over. There are a few ways to look at it. It's possible that the market will just whipsaw about for some weeks as the MACD's try to improve their current position.

The problem for them in the short-term is that on any move higher, if we got back to the old highs, we would see massive negative divergences form. Not little ones, but again, massive ones. That would most likely stop the move up. The other possibility is we get another strong move lower soon where the MACD's hang in well. On a bottoming stick the lows would be seen. Of course, there's no way to know for sure, but one thing can be said and that is that the MACD's aren't looking great right here. We can try higher still, but they are saying don't get aggressive with longs. Just respect the message and all will be fine.

The futures were flat heading in to the Jobs Report this morning pre-market. Everyone was wondering if the Jobs Report would mirror the ISM Manufacturing Report, or whether it would show a surprise to the up side. The rate did tick up, but the jobs created, although mostly temporary jobs, was a bit better than expected. The market, oversold already, was ready for a rally, and thus, the futures rocked up and the rally was on. The indexes flirted with the back test of the 20-day exponential moving averages and after a few early failures, was able to get through. It did get back to them late in the day but a late flurry up rocked the S&P 500 well over those 20's which were at 1634.

It's nice to see that take place and add in that the market now has a nice strong gap up in place, which, of course, will make things a bit tougher once again for those bears. The gap up never got filled by the bears so it is open. Open gaps to either side of the previous days close is never good news for the party on the opposite side of that trade. Did I mention we're in a bull market? We are, and thus, you can't be shocked when a market reverses from heavier down-side action over a few weeks. When no one thinks it will go up it does and today was one of those bull market lessons for the bears. The Jobs Report and oversold the catalysts, and now the bulls have a little protection from the gap up.

So let's talk about the Jobs Report and the effect of it on the Fed, and therefore, our stock market for the short- to mid-term. Bull market rage on when you have Fed governor's flooding the system with cash. The economy would have to show significant job growth on a sustainable basis before he removes the free cash. That's what he has said time after time. Today's report was not what he wants to see. The majority of jobs created were of the temporary variety, and that's why we actually saw the rate of the unemployed tick up to 7.6%. 7.5% was the expectation. This is not at all what the Fed wants or needs to see. His stimulus continues to not work. While he'd like to stop, due to the ramifications of all this cash, he simply can't. He knows he's causing more inflation than anyone would like to see, but he's really at a loss on what to do to help this economy to rock higher.

So today was yet another shot against the bears bigger picture. The news today along with a recession number at 49.0 from the ISM Manufacturing Report tells the world he's nowhere near ending the ridiculous cash flow. Again, market protection. Cash has to go somewhere. With rates near zero, and staying there, it's the same old. Nowhere else to put the cash people want to have for their future retirements. CD's won't get it done. Interest rates not getting it done. The best chance for reasonable gains only comes from the stock market. The Fed will work hard to be sure the economy survives through higher stock market prices in the months ahead. At least, that is his hope and will not give the bears any ammunition to bring things down too hard. The bull is alive. That said, things can still go down quite a ways from here after this rally ends.

One day at a time.

Have a great weekend!

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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