Stock Market Inside Candles Kick In Late Today....

Stock-Markets / Stock Markets 2011 Mar 23, 2011 - 07:48 PM GMT

Yesterday we saw an up trend inside candle stick that usually portends a continuation of the previous pattern from the past few days. We had been up for a few days in a row. Then we saw a very light volume candle stick that showed trading action within the previous up day stick. It said it was likely we'd follow through on the up side, but it sure didn't look that way when we woke up this morning and saw eroding futures. Those futures never recovered, and thus, yet another gap down.

We lost those critical 50-day exponential moving averages the S&P 500 closed right on from Tuesday. 1293 is that number, and with the gap down, it started to look as if we'd never see that level again during today's trading session. We went down to 1284, and it started to look like another test of 1249 was in the cards. Suddenly, right around midday, the bulls started coming back in with some energy, taking the market off the lows and moving all of the index charts higher. Volume the past day and a half on the selling was very low. Thus, it didn't take much energy to get this market moving back higher.

We closed right on the 20-day exponential moving average. All it will take tomorrow is a small gap up to clear, although we all know that's no guarantee. However, it would only take a small gap up now, and that sure didn't seem like a possibility half way through the day. The day has to be looked upon as bullish overall as the bulls saved things when they started to get away from them. Now we see if tomorrow can be a follow-through day for the bulls. If not then today's save won't seem as significant. I have to say that it would be a bit shocking if we don't get some type of early attempt to power through.

When studying the daily charts and their oscillators you have to take notice of the position of the MACD's in particular. They have had a significant amount of unwinding through this pullback that has lasted for quite some time now. Markets can go lower from where they're positioned, but since we're in an overall bull market, it can't be too surprising that we're trying higher once again. Well below zero across the board, especially on the Nasdaq. Stochastic's and RSI's also have pulled back, but the RSI is now facing 50 from underneath, which has stopped any buying since the pullback started. So now we need to see those RSI's start to clear 50, which will also then help the S&P 500 pull further away from the 20-day exponential moving average. It needs to do this to get it rocking up anywhere close to the old highs. Again, we closed basically right on it. The big problem that will hit this market is if we do get up to the old highs on the S&P 500, unlikely to do so on the Nasdaq, we will see classic negative divergences take place. That's never a good thing with respect to much more additional upside action. We'll deal with that if and when the time comes.

The financials were down today, but at least they participated in the late comeback we saw across the board. They really looked bad early on, but you have to give credit where is due with a nice spring back up late in the day. Once again they did under perform, as usual, finishing in the red while the rest of the market went green. But at least they made some effort to get back on track and try for higher prices soon. That part of the market has been lagging for years, and although it has improved, it's still clearly lagging behind the rest of the market. It must get going for the S&P 500 to clear the 20-day exponential moving average (1298) with force. Without the financials the market has little chance to do well from here on in.

It's becoming clearer and clearer that the fed (Bernanke) has been printing money for one purpose and one purpose only. To keep the banks solvent so as to be able to lend out money to kick start the economy. It really hasn't been for anything else as keeping the banks solvent allows the economy to hang in there, but only if there's people out there to borrow the money.

That's the problem. We saw housing starts today. New housing starts at that come in at their worst level since JFK. That's right, since JFK! QE2 is NOT working. No other way to say it. No one is buying new homes. The lack of employment, or the fear of loss of employment, has folks reining it in now. Also, the cost of gasoline is cramping the style of your average American as it soars to nearly $4 per gallon. QE2 is a waste, and it now appears we won't be seeing a QE3 as even Bernanke is finally getting the picture that it just isn't any good, and it's not likely to start working any time soon with inflation running wild out there. He can try to fool people by saying we don't have an inflation problem, but clearly, the American public recognizes we sure do. The Bernanke plan isn't working. How long the market can hold up under that rising reality to everyone is the big question.

So now we watch to see if the S&P 500 can clear 1298 with some force. If it can clear 1298 then it can drag the Nasdaq up to its 50-day exponential moving average at 2714. Nothing, and I mean nothing, will be easy here. Accept that as fact. The candles printed today do offer hope that we can get another move higher here before things get more difficult once again. Some exposure on the long side is fine, but overly aggressive playing is not. This market won't be getting any easier to play for quite some time unfortunately. Day to day is the only way for now. Slow and easy.

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

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