Nasdaq Takes The Plunge..Dow/S&P 500 Need To Follow....

Stock-Markets / Stock Index Trading Dec 22, 2009 - 12:54 AM GMT

It's best when the Nasdaq leads as it shows there is a real desire for higher beta or to put it a different way, higher risk. Strong markets are always led by higher beta as lower risk and the like are left alone as it is believed the market will move higher. People basically thirsting for froth. They want those 50 and 60 P/E’s and don't care why they're buying it. They just want to own it.

So with a market being best when it's led by higher beta or higher risk, we saw step one today when the NAS/NDX broke out. New highs without printing nasty black candles. Now what's needed is for the S&P 500 and Dow to confirm. Remember when the S&P 500 and Nasdaq broke down below their 50-day exponential moving averages? The Dow, leading at the time, never did lose its 50's thus we never confirmed all the major indexes at breakdown. With the Nasdaq on breakout now, we need to see the other indexes clear their recent tops on volume and with force.

The financials decided to get involved today, but that sector is clearly in about the worst shape of all the important sectors I follow. Most every stock there is trading below its critical 50-day exponential moving average and that will need to change in the near future if the S&P 500 is going to break out and stay broken out. We don't need another head fake on that front. Breakout and failure is no fun thus we'll need to see much better continuous action. Goldman Sachs (GS) has that 50-day at 169.97. Four plus dollars away. It has to clear back over. JP Morgan (JPM) is at 42.35. It's right there for the taking. These two stocks are the big leaders in the financial sector thus we must watch these two stocks for clues as to what is to take place. I am convinced that without the financials, any breakout will be short lived and more or less a head fake. There's lots of hope here but we need to get these stocks rocking higher.

1085 is start to become a level that doesn't want to get revisited it seems. This is good news for the bulls. You all know I believed we'd break out before breaking down and I am sticking to it, regardless of whether it makes sense from a fundamental level. We can make argument after argument about what's appropriate when it comes to the stock market but that's really all a waste of our time. All that matters is the truth of what is and the truth thus far is the bears have nothing much to this point. The game is getting late for them. They need to make a massive stand right about now or they're going to have to deal with yet another leg up in this bull phase after a roughly four month consolidation. If you're a bear, the time is now. Simple as that as we are making higher lows and equal highs also known as an ascending triangle. They can break down but as the word suggests, ascending, the likely outcome is higher prices.

It's interesting to follow those 50-day exponential moving averages. What the consolidation allowed for was that these 50's could race up to catch price. During the March-September blast up, the 50's started getting put very far away from price. That is unsustainable and that's why the consolidation takes place. The 50's start to race up and when they get close to price, the tendency is for the market to race away from them again. 1085 is critical price support and now the 50's are just clearing that price making it tougher still for the bears. As it has raced up you get the feeling that the bears had lost their final chance. Never a guarantee but it is looking more positive for the bulls here.
No guarantee ever in this game but I still believe there's another eg up of some type to come. The Nasdaq was step one today, but we need the Dow over 10,500, and the S&P 500 over 1119 to confirm across the board. Patience and any unwinding to bring down overbought 60-minute oscillators is a buy.

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.

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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