Stock Market Keeps Fooling The Masses....

Stock-Markets / Stock Markets 2011 Oct 25, 2011 - 02:46 AM GMT

And that's normal behavior. It rarely moves in the direction of the masses, especially for any extended time period. We have seen the masses get too bearish for quite some time now. It's approaching two months' worth of pessimism at extremes. The last five weeks have been off the charts. The market has exploded in those five weeks. Again, that's normal behavior.

We came into today wondering if the market would be able to be up again as the weekend brought about lots of fear regarding Europe. Would the right things be getting done by Germany and France in terms of working out a solution to what is hurting all of Europe? The threat of numerous defaults coming from many different places beginning with Greece and working its way towards Portugal and Spain. Talks did take place over the weekend, and really nothing much got accomplished. Is it death to our markets? Not at all as we await a final vote on what to do this coming Wednesday. The market, for now, is ignoring things there until there's a conclusion of some kind. Many are asking, shouldn't we be more worried. Of course, in theory, we should be.

The sentiment just won't allow for too much in terms of selling. If there's very bad news out of Europe on Wednesday, the market will take a nasty hit. No question about it. My guess is, it would be a buying opportunity. Most folks still think the market is all nonsense and deserves to go much lower, and while we get an update on that thinking this Wednesday, you can hear it all over the television stations that do business news. I heard myself this morning on CNBC. Beware. In time, that may be correct. And as I said, we can pull back at any time from here from overbought short-term charts, and the fact that we're so close to massive resistance at S&P 500 1260. Selling right here wouldn't necessarily be a death sentence at all. Again, I think selling can still be bought for at least a while longer. Anyway, today was another good day for the markets with the Nasdaq leading. That's always good news for the bulls.

I think the most interesting thing taking place here is the news out of Europe. When I look at it from a distance, it seems to mirror our headaches from 2008. Not a pretty picture to be sure. There doesn't seem to be a painless solution to the problems at hand, yet the markets are giving Europe a free pass, and I think I understand why beyond the sentiment issue taking place. Our markets, and likely their markets, too, smells a Bernanke coming with massive influx of cash to keep things flowing; a QE type of program that will keep their banks afloat, while the heads of these countries try to find the right solution. I am not personally in favor of QE type programs, because they delay what appears to be the inevitable conclusion of the situation. It never seems to end well does it! However, that said, maybe the markets smell out something we don't. Hey, what do I know really? I am not involved on that end of things and wouldn't know what is, and what is not, available to them to make things better in the long run. The market is acting as if something longer-term may work out, but that's all conjecture for now. Maybe it is only sentiment, and once that's out of the way, down we go. But the set-ups just aren't confirming that for now. Only time will tell.

For the first time in seemingly forever, the financials made an important move today technically in a bullish fashion. The Direxion Daily Financial Bull 3X Shares (FAS), or the three times proxy for the financials, made a strong gap up and break over its 50-day exponential moving average and held it easily into the close of trading. Something like this hasn't happened since these stocks got crushed a long ways back. Goldman Sachs (GS), Wells Fargo (WFC), Citigroup (C), and American International Group (AIG) were among some of the financials that had a good day today. Does it signify anything relevant? You'd have to say yes, even though it doesn't feel right to say yes. You may want to take it as a meaningless head fake, and it may be just that, but the oscillators say it's meaningful, and definitely not meaningless. It makes me shake my head, which is good because it means I don't trust it. And that's exactly what I'd prefer to do. It keeps me honest and from getting too bullish. We have to watch the behavior of this breakout for a while and see how far it runs before tiring out. More importantly, when it sells off, will the key 50-day exponential moving average hold as support?

If it does then the move is for real. You can often, if not always, judge the truth of a move in how it deals with taking out resistance and then back testing it as support. Very interesting times. Watch the 13.70 area for that back test. If it fails, you know it was nothing more than a head fake. But we shall see soon enough. The financials are finally playing a bit of a game of catch up to the rest of this market.

So we watch and learn from here. We took out key resistance on the S&P 500 at the 200-day exponential moving average at 1235. There was, also, strong horizontal resistance at the same level. Good clean breakout today. Now we run into the monster triple-bottom breakdown, bear-market breakdown level of 1260. What can, and will, the market do with it?

Taking it out on the first try is extremely rare, indeed. If it holds close to it on any selling, however, that would be a prelude to a breakout over time. 1200 down to 1175 is massive support. 1235 is first support because of that 200-day exponential moving average breakout which took place today. It would be more bullish if the bulls can hold this level on any selling to come, but if it doesn't, it's not the end of the world for the bulls. Holding above 1200 down to 1175 is key. Very interesting times are upon us folks. We learn as we go.

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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