Stock Market Bulls Capture S&P 500 1105......

Stock-Markets / Stock Markets 2010 Jun 16, 2010 - 01:31 AM GMT

So the range between 1040 (3 tests) and 1105 (prior to today, 4 tests) was finally broken to the up side by the bulls. Fifth time the charm. Didn't come easy. Yours truly sadly shaken out along the way. It was tough. It gave more head fakes than one could possibly imagine would be possible. Yesterday being the latest of those head fakes.

The futures slowly, but surely, improved throughout the morning today, although the bears would make their attempts to keep things down but it didn't work. We were able to gap up and from there the story was an interesting one. 1100 was acting as strong resistance and then it crept higher to 1102 as the morning wore on in to the early afternoon, and then boom! 1105 was gone.

The bears tried so hard all day to keep the bulls out of this important level of resistance, but they just couldn't stop the bulls, due in large part to some powerful shorts taken on the past several days as evidenced by the action in the options market. When loads of puts are the play of the day so are shorts. The past week or so has seen several days of very high put call ratios. Today it came home to roost against the bears. Too much pessimism.

As the day wound down the S&P 500 made sure 1105 was taken out cleanly, closing on the highs and only four points below the 50-day exponential moving average at 1119. A good day for the bulls who now at least have some hope that we've seen the bottom in this pullback, but by no means is that a guarantee. More on that later.

The internals spoke today as they did quietly yesterday. Yesterday I mentioned that although the markets had a poor day on price, it had a decently good day in terms of the advance/decline line. 24/14 positive on the NYSE and 400 more advancers than decliners on the Nasdaq. Today, we saw price confirmed both by the advance/decline line and increasing volume. 5/1 advancers over decliners on the NYSE, and 4/1 advancers over decliners on the Nasdaq.

It's very important when we try to break through critical resistance or support that its done so with strong internals. No one would argue that today those internals were indeed strong as we crossed over 1105 on the S&P 500. The bulls have hope. Nothing more than that though. Just hope but no guarantee that things will play out from a bullish perspective as the months move on. However, hope is definitely a good thing when just a few days ago things looked dire.

So, now we look ahead and ask ourselves what exactly is next up for this market. I can tell you quite assuredly that it won't be easy for the bulls from here although we'd like to think it will be just because we finally made it through 1105 on the S&P 500. We have loads of resistance dead ahead. We start with 1119 or the 50-day exponential moving average. Tough resistance in its own right. Not as tough as 1105, but now we're very overbought on the short-term 60-minute charts thus getting through on the first try will be next to impossible. If we weren't overbought we'd likely fail on the first try.

However, it's hard to imagine the bulls giving away 1105, so we may be stuck for a short time trading between 1105/1120 or a drop higher on a breach. 1105 should hold all pullback's short-term if things are truly on the improve for the bulls. After 1119, we have the January right-shoulder high at 1150. That will be extremely tough. One step at a time. Let's see how long it takes the market to get through S&P 500 1119. If it can do that before losing 1105, and it should, then 1150 or close to that level, is a real possibility.

I want to remind everyone that we are about to get some reality thrown our way. Earnings season is close at hand and if it's anything like we saw out of Best Buy Co. Inc. (BBY) today, this market is in deep trouble longer-term. Horrible earnings there with the stock hit very hard on the news. Things seem to be slowing over the past month. We are seeing that in economic reports and from the likes of Best Buy, and thus, we need to be on heavy alert for some real disappointments from CEO's who thought the worst was over on their earnings report from last quarter. Many raised the bar for the year and for this quarter coming up, so there better not be any disappointments or there will be some nasty blood letting. This is not the time to be out there buying hand over fist. slow and easy is the ONLY way to be playing this incredibly difficult market.

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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