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Stock Market S&P 500 Index Makes New High....

Stock-Markets / Stock Markets 2014 Nov 06, 2014 - 10:18 AM GMT

By: Jack_Steiman

Stock-Markets

And that could basically be the end of this letter, and I'm not kidding. Really folks, what's there to add that I haven't yet spoken about the past many weeks. We have quite interestingly a very bullish set-up on the S&P 500, known as an inverse head-and-shoulders pattern that measures up to 2200, but, I have to admit, it doesn't seem possible to me. But what I think doesn't matter to the market. All the market wants to do is fool the masses as much as humanly possible. The volume trends on both sides of the pattern are what we normally look for, so you have to respect the possibilities. With froth so high, and I mean really out of control, it just doesn't fit with what the pattern is showing. But you still have to say it's possible.


We started out with a gap up, but the Nasdaq 100 began to under perform right away. The S&P 500 and Dow did fine with the S&P 500 closing on a new high, but the Nasdaq 100 didn't confirm, which, to be honest, is mostly meaningless. The different indexes have been taking turns leading. When one pulls back, the others take over. An index gets overbought, or has a bad night of earnings, and it sells, but the selling isn't across the board. It just switches places. The bears can't gain any momentum when it has some selling. So the beat goes on with the markets in the land of froth, but continuing to make new highs. It says be careful, but it also says some participation is fine. Of course, in time it'll turn down again, and we'll all get caught in a few longs, but you have to have a bit of scratch in the game. Just keep stops tight. 2% seems right for losses.

The market is happy about some gridlock politically. It prefers it that way, and is yet another positive for the bulls. They have the big one on their side in the Fed, with regards to rates, so when you add anything extra it's just gravy. The only thing going for the bears, and it's a big one, is froth, but you never know when that's going to kick in. You can't be totally afraid of playing because of one big sell signal when there are as many buy signals abounding. The Fed will always be number one on your hits list, but we all know if you stretch the rubber band too far, not even the Fed can prevent some decent selling, such as we saw recently when the S&P 500 fell just shy of 10%. You stick with the trend in place. There may be warning signs that make you feel uneasy about the trend in place, but you never waiver from it, until you get a technical sell signal. Front running doesn't work. Stay cash if need be, but never front run what isn't there is reality. A healthy fear is fine. Let that keep you out of trouble and keep your stops tight but most definitely it's best to stick with the trend in place. Playing hero usually makes you less wealthy.

The only thing to focus on now, with regards to potential selling, is whether it helps set up the right shoulder of that inverse pattern, or whether it melts through the right side and runs below key moving averages. There's no way to know what will play out, but the bulls have some amazing support on their side in the form of huge, multiple gap ups off the recent lows. Three gaps of twelve to thirteen points on the S&P 500 is not to be taken lightly. It's huge for the bulls. Six total gaps is simply amazing. Unheard of to be honest, so don't underestimate how much the bulls have on their side, if we see a strong down day that may be scaring you. Weakness, for now, can be bought, but again, always with the proper respect massive froth deserves. Day to day as usual folks.

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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