S&P 500 Clears Huge Moving-Average Resistance...

By: Jack_Steiman

So what do we make of today's move above two critical, exponential moving averages on the S&P 500. Price talks. Emotion gets in the way. Play what you see. So today we see that the S&P 500 has made the move above those critical moving averages, but we saw this a week back and then the market collapsed right back down. A head fake. Is this head fake number two? Only time will tell. The oscillators are strong on this particular move, so other than short-term overbought, it should try to hang in there better this time. Should is the key word, if we can unwind overbought without too much price erosion that would be a good thing for the bulls to hang their collective bullishness on. How any stock or index pulls back from overbought can be just as if not more important in how it goes higher. If the oscillators pull back to the near neutral zone and price holds this gap up that would be bad news for the bears. You only know when it's occurring, but the move today does seem better than last week's attempt to clear those moving averages due to better looking oscillators.

We'll get our answer soon enough, although tomorrow is only a half day before the three-day weekend arrives. We may need Monday of next week to give us a more definitive answer. With the gap up today we had to wait and see if the pattern of the past two days would come in to play. Those two days also saw gap ups that ultimately held green, but that had lost those gap ups intraday, which meant the move wasn't as strong as we'd like to see. Today was different. There was never really any threat to the move higher out of the gates. The gap held all day. The move kept stair stepping it's way higher. Solid action that gives the bulls hope of someday reaching back to 2116, but there is 2076 and 2094 in the way first. At least they took out those nasty moving averages that were sitting above and that shouldn't be ignored. The bulls can't complain about today's final numbers. Something to give thanks for if but for a day.

Sentiment has taken a big hit towards the bearish end of the spectrum. That is always good news if you're a bull. The level isn't such that the market can't take a big hit lower because it can for sure. That said, it would probably be more of a correction than a bear market since the spread at 7% is very low and almost unheard of in terms of starting a new bear market. For overall price to be only about 4% below the all-time highs and having seen the spread go from 46% to 7%, it is very unlikely we'll be starting a bear in the near-term. Again, we can correct, so never let your guard down, but we're probably somewhat away from a full blown bear. That likely has to wait a little while longer. No guarantee but most likely the case. The sideways action of the past year has taken its toll on the nerves of the bulls, and, thus, the spread has turned decidedly more favorable for the bullish case.

Now, it is true that the S&P 500 has cleared those nasty 20- and 50-day exponential moving averages, but there are lots of areas within the stock market that have not, and it's always best if we can get confirmation from just about everywhere. The small and the midcaps are still below as are the banks, which we know are huge in terms carrying the market higher, since those stocks are very heavily weighted in the averages. If the other sectors and indexes can clear, then the bears are in real trouble. They will work on those sectors that have not cleared in an attempt to hold the market from getting away from them. These other sectors are on the precipice of breaking above as well, so they don't have far to travel to get the job done but for now they have not gotten the job done so we need to watch them closely for further information about just how far this market can go.

The market is all about confirmation and having everyone through the 20- and 50-day exponential moving averages would be a great thing for the bull market to keep trying to at least hold par. As long as 1993 holds on the S&P 500 there's hope for the market. Of course, that would be on a closing basis. Interesting times folks.

Have a Wonderful Holiday!

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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