Europe Pulls A Bernanke.....
Stock-Markets / Stock Markets 2011 Oct 11, 2011 - 03:34 AM GMTBy: Jack_Steiman
If you can't beat them, join them, is what we've heard throughout the years. Europe is in a very dire situation with regards to defaults and their banks. Sarkozy from France and Merkel from Germany got together over the weekend and flooded the system with cash. Sound familiar? It should. It doesn't work, but it offers up hope for some reason. This hope got the futures moving higher overnight in Europe, and that happy feeling came into our neck of the woods. Up we went at the open and up we stayed all day. Nothing rousing after the open, but nice action as the major indexes all closed above the opening prints.
The flood of cash is a way of buying time in the hope that some miracle will fall out of the sky and rescue everyone. Sounds better in a fairy tale, doesn't it! It is a fairy tale to some degree. No one seems to have an answer to the ills of this planet from a financial perspective, yet the same actions keep taking place. When the rat is cornered it has no choice but to fight, even if it knows it has no chance. Not much different here or abroad.
The gathering of France and Germany, especially Germany, since it is somewhat healthy, offers up a reason to think someone might ultimately get a clue and find a cure. Add in the same old stuff, which these days means too many bears, and you have the fuel for a nice rally. Today represented what I think will take place for the short-term, which is some mild upside overall until things unwind on the sentiment front. The bulls know the trade is full, so any good news, such as today it was today, will help fuel a bear market rally, or help it continue short- to mid-term. So, today we have France and Germany to thank for the good news, but today shouldn't be construed as an overall positive in the bigger picture because we all know that throwing good money after bad isn't necessarily a good thing for the future, even if it for the moment, which is all anyone seems to care about these days. We adapt and today continues the good vibe for the bulls for now.
Whenever there's good feelings about the banks with respect to what happened over the weekend, you know the financials are going to bounce. The Goldman Sachs Group, Inc. (GS), Wells Fargo & Company (WFC), American International Group, Inc. (AIG), Morgan Stanley (MS) are just a few of the financials that were up today. It's very hard to distinguish between a real rally and another head fake rally when it comes to this area of the market because they're the most distressed group of stocks. The whole area is in a major decline, but we all know all major declines stop at some point in time, even it's just temporary. Most are so concerned about finding the ultimate bottom in these stocks because they feel the upside potential is compelling. I can understand that thinking, but if you look at things from a purely fundamental perspective, there is no news out there that says these stocks are about to embark on anything special relating to an ultimate bottoming process.
The headaches here alone in this country aren't going away any time soon as there are more and more bad loans piling up all the time. The problems abroad aren't going away just because two country heads decided to do something silly for the short-term. Only when we can be assured that the bad loans and foreclosures are truly gone, and only when we know for sure that defaults are no longer possible in Europe, should we even think about these stocks as plays for the longer-term. I would continue to avoid them, and let them rally some if, and when, the market continues to advance some overall in the coming weeks and months.
When a market is rallying hard from lower levels and doing so with some strong positive divergences scattered about, you want to be sure that the rally has the necessary components to continue to try and rally for a while longer overall. Not up every day because that won't be the case as we're still in a bear market. You do, however, want to see the proper evidence that there's some degree of sustainability in any market advance, so we look at the advance-decline line and that was very positive all day and stayed that way into the close. If too few are carrying the market higher, it's likely there's no sustainability to come.
Today was different, and though we could pull back from short-term overbought at any moment, the market is likely to continue to buy up the dips for now. You won't see much volume on the advance, because there's no breakout sand. So, let's face it, the majority believe we can't go higher, so you won't see massive volume. In this type of market, you have to let more of the advance-decline line be your guide. For now, we are getting what we want and what the market needs. When that stops happening, you know the market is ready for some downside again. Rallies up must be carried by the majority, or you should ignore it altogether.
You are all going to have to force yourselves to keep the bigger picture in the front of your mind. If this rally takes us decently into the low to mid 1200s on the S&P 500, you're going to love it and you'll feel as if the bull is back. The emotion of this game will take over and you'll want to go all in. Maybe that'll be the final result of what will take place, but I'd be very careful getting too bullish when things do eventually go higher in the days and weeks to come, with pullback's, of course, along the way.
Only a powerful blast through 1260 on the SPX, with all the necessary confirming ingredients, will change the bigger picture landscape. That won't be easy to do unless there's a miracle out there. You never close the door to anything in this game as you all should know by now. Adapting and adjusting are the key ingredients in successful trading. For now, as things stand, you need to remind yourselves as to where we are in the world with regards to the stock market. It's not a pretty picture longer-term as things stand now. Short-term, they're not bad at all. Don't confuse the short-term with the long-term.
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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