Stock Market Moving Along Laterally To Down In Good Fashion......

Stock-Markets / Stock Markets 2010 Nov 21, 2010 - 06:29 AM GMT

Which really means that the market has now traded for two weeks within a range that should last for many weeks more if not a bit beyond that. This is what is normal and takes place once you make your measurements on all the key index daily charts. This is also what happens when you add in the fact that we were massively overbought for quite some time indeed. Months to be honest. A lot longer than you usually ever see. This tells me that although healthy, this market will need an extended period of time basing out before trying to move appreciably higher once again.

The great news here is that the longer we do nothing on the up side the faster sentiment issues will unwind. People will hate the market soon enough. Folks, get pessimistic quite quickly out of fear once the music stops for any extended period of time. The ride has to be over they think. They'll also hear more and more of the pessimistic talk on the business news stations. Not only about the stock market, but also how bad things are globally in many different aspects.

We were about plus 36% more bulls than bears coming in to this week. If this lateral-to-down market hangs in there a while longer, such as I think it will, it won't take more than a few weeks to get that percentage back down in to the lower 20s. It would be best if the market doesn't blast back up here. I think the 1228 area will be the top of the range for some time to come, while 1170 down to possibly the 1150 area should be the bottom. Patience everyone as things unwind over the coming weeks. Just take a quick look at how much those daily charts have already unwound. Deeper still would be better still.

This market, when it's in its pullback phase overall, shows its true hand in terms of understanding what will hold up best and what will perform best when the market is ready for more appreciable upside again down the road. All you have to do is look at the financial sector to recognize what is weak and in reverse, just look at the retail and transports sector to see what's strong. Discounter Wal-Mart Stores Inc. (WMT) reported ho-hum results while competitor Target Corp. (TGT) exceeded analysts' forecast by nearly 20%. In high-end retailing, Nordstrom Inc. (JWN) reported profits in line with analysts' forecast.

Among building materials retail stores, Lowe's Companies Inc. (LOW) disappointed while The Home Depot, Inc. (HD) did not. In department stores, Kohl's Corp. (KSS) reported a profitable quarter while J. C. Penney Company, Inc. (JCP) results broke-even.
Add in those semiconductors showing good strength. At some point they may participate again down the road, but you should really be looking elsewhere with regards to involving yourself with too much if any exposure in the world of the financials.

Why bother playing stocks that may have to be dragged up in a good market. Play strength. Play where the charts are strongest. In addition, on the first sign of weakness, you know those stocks will get hit the hardest. This is the perfect time to watch and learn about the markets intentions for the middle term. Look to see where its treating things there best and where it doesn't want to go.

There are times when critical levels of support can be broken. The 50-day exponential moving average being that critical level. It's at 1171 on the S&P 500. A break of 1-2% would really gets things bearish from a sentiment perspective. You don't want a deep break, more than 2%, and I don't think that will happen, but a break below of any kind would really get the bears frothy. In addition, it would help totally unwind things on those daily and weekly charts. It does NOT have to happen but if it does, losing those 50-day exponential moving averages would not be a bad thing as long as it's nothing too big.

The market is fighting to get back cleanly through the recently lost 20-day exponential moving averages and that is very normal when a market is unwinding. It may trade above and below for a while, but no real blast off should occur. We closed above today as 1193 is that number on the S&P 500. It would be nice to get further above early next week so we have room once we pull back again. The fact that the market was so strong for a prolonged period of time allowed the 50-day exponential moving average to climb rapidly close to price. This makes it easier to lose it once things sell some from the top. That's why it's not so bad if it happens as long as the loss of it is not severe.

When a market starts the process of moving sideways-to-down, one thing that must be looked at is whether the internals on the way down are equal to, or worse than, the internals were on the way off the recent lows. The answer thus far is that there is nothing bearish taking place in the process thus far. The volume is not one of distribution, a key factor to watch for sure when you're at tops. That would be an ominous sign for the bulls.

The advance-decline line is nothing to be nervous about. As long as this process continues in the weeks ahead, there is more reason for the bulls to get excited. If you get one or two days in the down process that are bad but that's it, this also isn't bad news. You need a sustained string of days to weeks of internals here before there's a big red flag. Thus far, we have nothing on the bearish side of things.

What we'll all need is patience, folks. No need for extreme exposure on either side of the trade. Let things play out as they normally do in this type of environment. Lateral-to-down overall is perfectly normal and healthy here. Be patient. Down play too hard and things will likely set up for us once again in the weeks ahead. Be appropriate and stops tight.

Peace and play with a child if you get the chance this weekend. Do it every day if at all humanly possible. You'll love the experience.

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 constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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