Stock Market Nothing Black..Excellent Action For The Bulls But Nas Lags....

By: Jack_Steiman

We gapped up today after yesterday's big move higher. This was critical for the bulls in that they needed to show follow-through from their big day yesterday. The fact that they gapped things up today was very interesting. A gap up in to the gap existing at Standard & Poor's Depositary Receipts (SPY) 1060. That's not how bear markets behave. You don't gap up in to a pre-existing gap down.

The gap did get filled, which allowed the bears to breathe a sigh of relief. But the truth is, we held that 1060 gap up all day and finished powerfully over the last fifteen minutes of action, allowing the markets to finish pretty much at the highs. A gap up that holds late day and erases all of the intra day black candles can only be looked upon as bullish action. There's no way to spin that bearish. With the close being so strong it took us to overbought at the close, thus some unwinding will be necessary to bring down those 60-minute oscillators, but score a victory for the bulls today. A slam dunk victory at that.

So now we look for red flags to say why it wasn't perfect. Hey, I have to cover all angels. The Nasdaq lagged all day, finishing on a percentage basis well below the gains of the S&P 500 and Dow, which is not the best of all worlds for the bulls. The Nasdaq should lead, and over the past two days it has lagged, but that can be corrected quick enough. The only thing is how much it lagged, and it was significant. A full half percent with an advance/decline line nowhere as good as the NYSE. Again, as long as this can be fixed in short order it's nothing major, but lagging for two straight days isn't the best of behaviors. On the next move up it's essential to see the Nasdaq stocks rock higher and put the Dow and S&P 500 stocks to bed. Other than this bifurcation there is nothing else to say things weren't as good as the actual price action was.

The 60-minute charts are overbought. Pretty much 70 RSI readings at the close of trading. A hair below on some index charts but overall pretty much 70 across the board. It can get over 70 but a drop but sooner than later will need to unwind. It can do so with some lateral moves for a day or two but some erosion of price is likely. With 1060 the gap today, we may not be able to get much below this support level as things cool off so the bulls can try higher. Sixty minute unwinding can occur quite rapidly so you don't want to get too far away from the action. The RSI's may not get far below 50 on those 60-charts as well thus you have to be around and watch things quite closely. Once the trend begins to change, RSI 50 on those short-term charts is about it for any sustained downside action. The S&P 500 closed three points over the 20-day exponential moving average.

Not far enough away to say it's clean. Add the overbought conditions and my guess is we'll trade back below it tomorrow. The Nasdaq has the 20-day exponential moving average and a gap at roughly 2185 on average between the two. Strong resistance just above. It seems it would be asking far too much for these indexes to clear through cleanly while this overbought on the short-term charts. Strong resistance at overbought is never a time to buy too much which is why we definitely need those short term oscillators to head lower before considering long purchases.

It seems as though the short-term is being ruled by the levels of pessimism that have crept in. Earnings haven't been good in the early going and will need to improve dramatically as things get going on Monday. However, sentiment is on the side of the bulls and thus pretty much a stalemate exists until we can see earnings really blast up. We'll have to see what we get over the next many weeks but I don't think earnings are going to be very strong overall. Short-term we have a market that wants higher but beyond that things are unclear until we can see what the earnings will tell us.

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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