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Trading Lessons

Challenging S&P 500 1947/Breakout....Sentiment Changes...

Stock-Markets / Stock Markets 2016 Feb 27, 2016 - 07:39 AM GMT

By: Jack_Steiman

Stock-Markets

A very interesting week as the S&P 500 made a strong move upward towards the double top breakout at 1947. It succeeded at getting through. That was as of the close yesterday, so naturally when you get a breakout what you want to see is follow-through, which was the case this morning when we woke up to some very strong futures. The breakout was on with a move to 1962 early on in the day. A nearly 1% move, which can be confirming, but only on a closing basis. When the day was over we saw the S&P 500 pull back, and, thus, it closed only one point above the breakout level, which is not enough to yet confirm that breakout move. Above, but not by enough. So yes, the market has made its strong move off the bottom, but now we get some deeper understanding about what's taking place. About whether this was a rally in a bearish environment, or whether the market is ready for much higher prices. When you study this evening's charts you'll see some very interesting back tests that got stopped today.


It's a very interesting time in this market as the bulls and bears alike are on edge wondering which way this market will swing. It could go either way, but again, study those charts and see where we stalled. A false breakout was possibly the case, but you cannot draw a definitive conclusion at this point in time. We'll need another weekly candle stick to gain that type of necessary insight. For now, our job is to play very carefully, and with extreme patience. It's annoying to wait, but buying only when the oscillators have unwound on the sixty-minute, short-term charts makes sense. Otherwise, your risk reward disappears quickly. Ask those who chased the open today. Not pretty. Not good to buy 70 RSI's, with stochastic's in the 90's on any important time frame. So if we get some pull back next week on solid oscillators, we can buy again, but if we should happen to gap down on Monday, and that gap remains open then things get dicey. Monday is a very important day, with regards to those trend lines you'll see on those weekly charts. Fun and interesting. Stay tuned to a huge week ahead.

Well folks, it never takes long for froth to show itself when the market starts to rise. The fear of missing drives everyone in to equities, with lightning speed. The AAII survey shows bulls are flying higher as they're at levels not seen for many months. The bull-bear spread, once at -14.5% just a few weeks back, will probably be decently above 0% when we get the new numbers next week. Greed, and fear of missing, are two very powerful tools. The bulls are rocking. Now, let's hope they don't get the rug pulled out from underneath them. It may not happen, but they are rocking with force. That can often be the case when you hit strong resistance, such as you're seeing in the charts tonight. They better hope we break above those trend lines or they will be feeling some unnecessary pain. The bears rarely get to enjoy themselves, but they have to feel good about the fact that their numbers are on the decline, while the bulls are rapidly on the increase.

Folks, those who were bearish are losing their momentum on that belief system, thanks to the action over the past few weeks. The market is always fun on that level. It's interesting to see how emotions sway back and forth based on the action over such a small period of time. Bottom line is the bulls are definitely rocking in now. We'll see if they're about to get burned some.

Have a great weekend as we watch S&P 500 1947 for success or failure early on in the week.

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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Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.


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