Stock Market Bulls Fight Back...

Stock-Markets / Stock Index Trading Jan 14, 2010 - 01:07 AM GMT

Yesterday we get a strong gap down that runs lower all day. A trend down day that puts the bulls on notice for more down side action. The move lower coming from overbought oscillators on those daily charts. Surely the market could use some time off to get things unwound. Give the bulls a breather. The market could use it so let’s just continue the selling today. Not to be. The market rallied early on and failed right where it was supposed to. Right at the back test of the gap down that would put the brakes on any rally.

The Nasdaq fell nearly twenty points at that moment as it should. So another trend down day off that back test was under way, right? Not at all. The market roared back and stunningly, it closed back through the gap down. Seriously folks, that's not supposed to happen. It's just not. That gap should have been a wall that was impenetrable. Somehow the bulls said forget about it bears and thus at the close the Nasdaq 2297 gap has been taken back. A bullish trend is a bullish trend until it isn't but I thought we'd at least get some deeper selling right here to get things unwound. The market showed what a confirmed up trend looks like and thus the reason it's not the best idea to be thinking about shorting it for now.

One major league red flag today showed up in those sentiment numbers once again. The bull bear spread now being at 37.5% or very close to that 405 level which can almost be a guarantee for at least a short term top. The problem is that knowing the moment that will kick in is not an exact science. Sentiment is very important at high or low levels but is still not a super primary indicator that gives notice at a particular moment such as divergences can for instance. It is noted and definitely something to be careful with in terms of exposure. It tells me that there is no way I'd be long 100% of my portfolio. However, it does not mean I am not taking long positions such as I have. Again, not 100% but clearly some exposure is still warranted.

As the charts will show you tonight, there are some very nice base set ups taking place everywhere. It's hard to believe based on what has already taken place over the past several months but you should not argue with those charts as they have really not lied for quite some time. The bullish set ups, even when it seems unreasonable, have been working out over time. I don't think even the most head strong bear would argue with that reality. Their accounts would attest to that. Base after base sets up and goes higher followed by the same process all over again. It feels as if another move higher is impossible but then it happens. If you're not playing them it's fine but at least don't short just because you feel it's inappropriate. Easiest way to get knocked out of the market forever and to experience some terrible financial losses. Stick with what's working until it stops. Simple as that.

The dollar or PowerShares DB US Dollar Index Bullish (UUP) for now has lost its bullish set up although it does seem as if the play isn't affecting the market as directly as it did before. There are down days on the UUP where we are also down as well as up days on the UUP where the market is up as well. However, we have to respect what has happened until just recently and we need to worry about that direct inverse affect happening all over again. It's good, therefore, to see the UUP no longer working as directly as it did before to equities. The bulls have to like that it's losing its more bullish pattern for now just because it removes a possible headache for the up trend.

To be very honest, I am totally surprised by the fact that the market moved back up through the 2297 Nasdaq gap today. You have to respect the power of this bullish trend whether you think it's fair or not. A time will come where a more intense down trend will ensue and last for many weeks if not months and who knows, maybe today was just a head fake back up. I'm thinking the market is feeling Intel (INTC) will be strong tomorrow night and JP Morgan Chase (JPM) will also be strong Friday morning before the market opens. The bears are probably taking the foot off the gas to see what happens so as to not get hit hard again. They've taken enough of a beating. All we can do is go with the flow and thus the reason for some exposure to longs and no exposure to shorts for now.

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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