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Stock Market Holding 1628.... Nasdaq Lags… Nothing Bad...

Stock-Markets / Stock Markets 2013 Jul 09, 2013 - 10:16 AM GMT

By: Jack_Steiman

Stock-Markets

Today was an important day for the bulls. They finally captured the gap resistance level of 1628 on the S&P 500 on Friday after numerous failures. They didn't clear cleanly as the close was only approximately four points above, but it was good to see the close above 1628. Today the bulls were able to get a gap up again putting some further distance away from 1628. Every point counts when you're trying to move through a key level of resistance such as 1628. The move today wasn't huge, but it was decent and that's really all that matters as you can't have explosive days every day.


The important thing is whether the S&P 500 was able to hold the 1628 level, and whether it was able to run a little higher. We can answer yes to both of those questions. As time moves on, the longer you can hold above, and the further you pull away, the easier it is for the bulls to get more aggressive as time will allow them to feel better about where things stand. If the bears can't make a big run against that 1628 level with force below, the bulls will know they're in full control and will seize on it. The bulls are in the clear here so they will need to get going on it sooner than later. But for today, it was good to see the bulls follow through on holding 1628 and running up a bit further.

Some are talking badly about how the Nasdaq lagged today and how that is never a good sign. Not true. It's only a bad sign if it becomes a habit. Day after day, but one day does not a trend make. The Nasdaq has actually out performed by quite a bit, and thus, it can't be viewed as a shock that it spent a day letting the other sectors catch up a bit. When you run the fastest you get overbought by the most and this is exactly what took place on the Nasdaq. The sixty-minute chart got the most overbought, thus, it had to pull back the hardest.

It got well over 70 RSI and that's not sustainable as well know by now. Some selling to unwind is never a bad thing so we look at how the Nasdaq under performed today and take it with a grain of salt. Nothing bearish whatsoever. Now, if it becomes a habit as the market tries to move higher in the weeks ahead, that would become a red flag. It's never great to see froth not lead when moving upward. Froth needs to lead and there's no greater place for froth than what we find in the Nasdaq. Valuations as we all know are totally out of control there but that's how bull markets work. Lead me to your frothy leaders. I think today was nothing more than the Nasdaq pulling back more from overbought and that it will overall continue to lead the market higher over time.

It's now earnings season. The bar has been lowered due to the numbers that came out the past few quarters. Many key companies have lowered their expectations. This allows these companies to have an easier time beating the numbers they previously talked about. Many stocks have pulled well off their highs, thus, it'll be somewhat easier to get them to climb back up if the news is even respectable. Bad news is likely to be treated as such, but if companies can talk up the future a bit then most should get away with things, even if they aren't as good as hoped for this quarter.

Alcoa Inc. (AA) always starts things off, but they're a meaningless stock with regards to the overall market. It's all about the leaders in leading sectors that will be reporting in the days and weeks ahead. The financials will be watched closely as they start their parade of reports this Friday when Morgan Stanley (MS) and Wells Fargo & Company (WFC) come in. If those two are good it sets the tone for the rest of that group.

JPMorgan Chase & Co. (JPM) and Goldman Sachs Inc. (GS) are either later this week or early next week. Tech stocks will also be in focus. How much worse can it really get for Apple Inc. (AAPL)? It has tried to rally lately off its double bottom with a positive divergence. If AAPL can help that would be huge for the Nasdaq, the natural leader of the market. It's crunch time as these reports will go a long way to helping us understand whether the S&P 500 can hold above 1628 for the longer-term.

The S&P 500 has support at 1628 and then there's a conglomeration around the 1600 level. Below that would be a double bottom at 1560. If we lose 1560 we can easily go towards the 200-day exponential moving average at 1529. If we can break through 1654/56, we can test the old highs at 1687. But that will require some good news on the earnings front.

For now you use weakness to buy or hold more cash as we learn about how earnings will look. I think they'll be fine but we shall see.

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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