Stock Market Nails On The Chalkboard....

By: Jack_Steiman

No one likes that sound. Makes you cringe. Makes you scream and cover your ears. It's just not pleasant. That's where we are now. An unpleasant grinding market that refuses to change its stripes. It refuses to pull back and reset those oscillators, but at the same time it's constricted to the upside. Markets do not blast higher, even in retail market days such as these are at holiday time, when you're this overbought. There's just not enough fuel in the tank to allow things to launch upward and out in to a new leg of this bull phase we're in right now.

There has been no recent catalyst to take this down, yet sentiment keeps getting more bearish from the perspective of too many bulls around. The spread is nearing 40%. At some point in that spread the market won't need a catalyst. The market will fall from all the bulls being in. So we wait for that moment for the market to snap, but there's no way to predict when that moment will come because there is nothing more than overbought to get this market to sell down. It's coming, but could wait until the year is out as the big money is sitting on the side lines for now waiting for the retail trade to disappear once the holiday season is gone.

You see this in the very light volume traded just about every day. There is, generally speaking, no volume worth talking about. That's classic Christmas action. So for now, we move slightly higher just about every day with the risk still on top of us because we just don't know when the sentiment will snap things for a more powerful move lower to unwind the daily chart oscillators.

One constant on the street these days is the solid earnings reports that are coming in day after day. There are disasters out there, but that's always going to be the case. Overall, however, the majority of company's are reporting better than expected numbers, and on top of that, they are raising expectations for the future. This process would have to reverse quite a bit for this market to leave its current bull phase and move in to a new bear phase.

The market is ultimately all about earnings. As long as that's holding on well then the bull phase would remain in effect, even if and when we see 5-10%, or greater, pullbacks in time due to sentiment. Strong pullbacks are often confused with a bull phase ending. That's where things get confusing. Earnings suggest we hold on for a decent ride higher down the road that will be interrupted by strong pullbacks. Use those pullbacks for buying the best set-ups is the best advice I can give when the time comes that we do sell and everyone thinks the best is over. All in good time.

The S&P 500 has strong support at the 20-day exponential moving average at 1224. Right next to 1224 we have the November highs at 1227 on the SPX. When you have good support so close together it acts like a powerful shield in favor of the bulls, thus, if we do pull back here, that 1224/7 area should hold things for the bulls. In time we'll probably take those levels out when the market wants to sell for real, but for now, we can expect things to hold pretty well at, or above, this support area. 2590 is big support on the Nasdaq.

One thing that is quietly taking place already to set up bigger selling down the road is the way fewer and fewer stocks are making new 52-week highs while the overall market grinds higher. The advance-decline line is also starting to deteriorate. More and more stocks are losing their 20- and 50-day exponential moving averages. Slow erosion underneath the surface.

Healthy markets don't do this. They hold relative strength in the internals versus price, and we are not seeing that right now. Again, red flags for down the road when we'll need a bigger selling episode to kick in. Little warnings ahead of the event to come. For now, we continue to play the retail game, which means it's likely we'll hold up pretty well for the rest of the month with scattered small pullbacks in between. Bigger selling shouldn't kick in for a while longer, but you can't let your guard down at any time when the market flashes those red flags. Keep the trading light.

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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