U.S. Dollar Full Short-Term...Stock Market Up..Still Nowhere....

Stock-Markets / Stock Markets 2010 Dec 02, 2010 - 03:25 AM GMT

And that's the reality of this stock market, even though today felt really good. I respect and understand the emotions behind a market this good, but you have to keep in mind that all we're doing short-term is trading in a range defined by 1228 on the top and 1171 on the bottom. The dollar had put in a short-term topping candle yesterday and because the stock market is trading inverse to the dollar trade, it's no shock that we had a very nice up day today. This does not mean that we're about to break out above 1228. It's not likely to happen at all.

The market is likely range bound as stated above for quite some time longer. The daily charts are just not set up to break out as any move back to 1228, or a drop higher will put in a major negative divergence on every critical index daily chart. This would not allow the market to run further to the up side, so please don't get too excited right here. Aggressive playing to the long-side makes little sense, but we can hope to get back up to the old high near 1228, although that won't be easy. Today was nice for what it gave us, but again, by no means does it suggest we will be breaking out any time soon, so adjust your trading accordingly.

When one studies the dollar chart you will see that all it did was flash a very short-term sell signal, but the overall chart is still quite bullish in nature. The 200-day exponential moving average was hit from was below and it got very overbought on the daily and short-term charts. Pullback time is all but still pretty bullish in its pattern, and this is the biggest reason to keep your expectations for the stock market in check. A period of lateral to down is expected here, but it should trend higher once again when things unwind on those overbought daily oscillators.

The MACD on its daily chart shot up quite nicely and this suggests the buying is not over for the dollar. If the dollar wants higher again some time soon the market will want lower and again, with the MACD not so great on those daily index charts, it says the market should struggle overall with too much upside for some time to come.

We do have some genuine bad news for this market. The numbers came in much higher in terms of the bull-bear spread this morning than I thought they would have. When you think about the action over the past few weeks you'd have thought we'd have dropped from that 36% more bulls. We're still, however, at 33.6% more bulls and that's just not sustainable longer-term.

Timing a sentiment decline is never easy especially when you have no other sell signals in place at this time. We can drift higher for sure short-term but nothing will be easy to the up side, especially as you get closer to S&P 500 1228. I think the sentiment spread has to drop at least 10% from here over time, if not more. Until the sentiment levels come down it's unlikely we'll be blasting out any time soon. That doesn't mean there aren't good long set-ups but it'll be tough.

The good news short-term for the bulls is those gaps from today back above those key 20-day exponential moving averages. The top of the S&P 500 gap is at 1186 with the bottom of that gap at 1180, thus, 1180 becomes massively strong support for the short-term. In addition, we have the 50-day exponential moving average at 1176, so you can see the strength of support from 1186 down to 1176.

The job just got a lot tougher for the bears and a bit easier for the bulls. Only a break below 1176 would be important, and on the other side of the trade, only a breakout above 1228 would be critically important to both sides of the trade. In between it remains nothing but noise.

Caution remains the trade. There are some stocks setting up. One or two can be played but nothing aggressive until we break above 1228 or below 1176. Nothing will be easy, so please adjust your trading.

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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