Stock Market Rally Refuses to Quit....

Stock-Markets / Stock Index Trading Oct 20, 2009 - 04:14 AM GMT

Best Financial Markets Analysis Article Negative divergences. In fact, quadruple negative divergences on the Dow and basically triple negative divergences on the S&P 500 and Nasdaq. Overbought daily charts everywhere to add on to the negative technicals.

So how does the market respond?

Another up day.

Up a drop at first. Then some selling in the Nasdaq took it red while the other indexes held on to tiny gains. Blink your eyes and we're up strongly across the board. The bulls were very determined to hold on to Dow 10,000. It tested back there many times early on today but the bulls would not give in. It didn't take long for the bears to give up yet again. We spent the day hanging around up one hundred on the Dow. Solid action with the S&P 500 thus spending yet another day above 1080.

There is was a feeling early on today that the market would hold up simply because we had earnings from Apple Inc. (AAPL) tonight. The market wanted to get a good look at this beast to see what they'd say about the economy and growth and whether they'd guide higher and blow away the numbers. Too many bears were nervous about this becoming a nightmare should they short and get smoked by AAPL. I mean, this wasn't Microsoft (MSFT) reporting. This was AAPL, the king of all kings.

You have to respect them thus the bears kept their distance. With the market closing near the highs, it will take a good report from AAPL and Texas Instruments Inc. (TXN) to keep this market moving higher. Tonight will be very telling for sure. If AAPL and TXN are bad, with the market being very overbought now, it will fall easily. If they're good, the market will try to grind higher still.

In the end, the market held up in front of AAPL and TXN. Now they must deliver. Another good day for the bulls. Another frustrating one for the bears. Seven months worth of frustrating days.

It's important to recognize how close we are getting to the top of our bearish rising wedges here. Bearish because of the poor divergences with each new high. You want to not be holding longs if we get to the very top of these wedges. That level is approximately 1115 S&P 500. Again I say approximately but the point is, you don't want to be loaded up long should we get lucky enough to get that high. I would probably go cash if not almost all cash at that point. If we were to get a strong reversal stick, a short would be appropriate. Never too much as we're still in a confirmed up trend. Do not forget that reality.

Hitting the top of the wedges and then pulling back does not mean we are going from bull to bear. A lot more work would need to be done by the bears for that to be a truth. Just don't forget, and I for sure won't let you, that the top of the wedges are where you want to lighten up your longs to see how the market handles them. If it breaks over, we can always get back in.

The VIX (CBOE Volatility Index) is breaking down and the bears are using this to say we're complacent but the numbers don't lie. We're not complacent by a long shot here. Survey after survey shows bears are still hanging strong with bullishness no longer advancing advancing. The percentages are well within normal range and in fact, the past few weeks have shown the differential to be tightening up. When the VIX breaks down that often portends somewhat higher prices thus the theory that a low VIX is bearish has no merit. It doesn't mean we can't have a normal pullback. It simply suggests that the bulls remain in overall control of this market for now.

The earnings have been coming in mixed but when they've been, they've been very good. Many of them have come from big time leaders such as CSX Corp. (CSX), Eaton Corp. (ETN), Apple Inc. (AAPL), Google Inc. (GOOG), and others. While we have had some awful reports, the majority of critical stocks have been saying all the right things. They've not only been beating but guiding higher for the future as well and this makes the bearish case over the next few months tough to believe. When earnings are good there is little to bring the markets down other than the usual needed selling episodes to unwind the oscillators.

Stocks are gapping up and this adds strength to the patterns making deeper selling more difficult thus holding the market up overall. Still some big stocks left to report but AAPL and TXN were solid tonight. I know the results now on these two plays and with good numbers in, the futures are up some and this will be the way things go overall as long as solid numbers keep coming in from the big boys and girls out there.

The indexes show some interesting trends for the start of this week. SPX is approaching some significant resistant, which comes in between the 1100-1500 area on a number of front. The Dow (INDU) is approaching our 50% Retracement and Downtrendline off the 2007/2008 Highs. The NYA continues to push high with us currently testing our 50% Retracement area…room to run on our RSI. The Russell 2000 (RUT) continues to press higher with room to run on RSI and has now cleared through our 50% Retracement Level. A strong run in Copper (JJC) continues a leading economic indicator. The Cyclical Index (CYC) continues to advance high thanks to a strong report by ETN this morning.

Support is now at 1080 for the S&P 500 and 10,000 for the Dow. 2147 is huge gap support for the Nasdaq. If we can stay above these levels for a while and go to the top of our wedges, the pullback to follow may be no deeper than these support lines. We take these day by day. It's the only way. Let's just not forget how tough those wedge tops will be. Around 1115 S&P 500. 1121 is the 50% retrace of the bear market lows. A very tough area of resistance for sure. We remain only long for now.

Peace
Jack Steiman

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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