Why The Stock Market Hangs In There...
Stock-Markets / Stock Markets 2012 Jan 19, 2012 - 02:48 AM GMTBy: Jack_Steiman
The stock market has fooled many non-believers over the past year or so. Not that the market has done so well, because it hasn't. Dead flat on the S&P 500 last year as it opened and closed at 1257. Given the circumstances that surrounded the global markets in 2011, it is nothing short of a miracle that we ended up 100% flat for the year. I called it the year of the bull for obvious reasons. Let's be honest, if the market had been down 15-20% last year, would you have been shocked by it all? I doubt it. You may have said something like, thankfully, it wasn't worse than that. Many bears, hard and steady bears at that, just couldn't understand what it was that kept this market together. When looking back, and looking at the moment, the reasons aren't that difficult to understand. Most people are not satisfied with not making money during the course of a calendar year. They want to be mostly fully invested. They have to think about retirement, so it's hard not be in the game. Understanding that helps you grasp things a bit better.
Realizing that people want to be in is the first premise. After that they have to decide where to be in. Well, you're not going to want to invest your hard earned dollars in places where there's serious risk to a financial catastrophe. That eliminated, basically, all of Europe with maybe the exception of Germany, but they're guilty, sadly, by association. China and Japan were showing economic slowing. That pretty much eliminated them. So now you look at the United States, where we have plenty of problems of our own. Not as bad as the rest of the world, however.
Interest rates are near zero. If you're getting nothing from leaving your money in the bank, you want to be involved somewhere. By process of elimination, and the need to be involved, the United States wins by default. This is why our market is holding up for now. Doesn't mean it will continue to do so, but it's absolutely the reason for it performing as well as it has over the past fifteen months. Nothing to get excited about, but better than a sharp stick in your gut, which is what it could have felt like based purely on fundamentals.
Today we saw some very good earnings reports from last night and this morning, and some very bad ones as well. State Street Corporation (STT) and Bank of New York Mellon (BK) crushed on their reports, but Goldman Sachs (GS) rocked higher. There has been a decent mix so far, but there were some strong reports that surprised people for sure. Goldman Sachs was supposed to be bad, especially after the poor reports from JPMorgan Chase & Co. (JPM) and Citigroup (C) just a day earlier. This gave the futures a reason to hang in there early on after trying to go red. The market opened flat but worked its way higher as the day moved along. Goldman Sachs breaking out the main reason for the good tidings. A major financial leader, and with the market desperately searching for something good out of the financial world, it was the impetus to move this market higher. Earnings will be the major reason for what we see in the weeks ahead with regards to the markets ability to break out over 1320 on the S&P 500, which is the long- term trend line breakout for the bulls. If earnings come in favorably, this will allow the market to blow through 1320 in time and move us up appreciably higher.
Tomorrow night we get the first real action from a number of leaders all in the same evening after the market closes. Microsoft Corporation (MSFT), International Business Machines Corp. (IBM), Intel Corporation (INTC), and Google Inc. (GOOG) all at the same time. Four leaders in four different areas of the market. A fascinating evening coming up tomorrow night. Today we saw the market move higher, even though yesterday we printed some topping sticks because the leaders led higher, and that will need to be a trend for this market to break out in time.
We know by now that there are two different markets going on at the same time. However, over the past week, one of those is changing for the better, if you're a bull. Stocks such as Amazon.com Inc. (AMZN), Wynn Resorts Ltd. (WYNN), and other froth stocks not worth half their current prices, are turning up with positive oscillators that no longer are bearish in nature. They're also now just beginning to clear important moving averages that recently had blocked any prolonged advancement. This is a change of character for sure. It's always a positive when froth leads, but it's even better to see many that were in bear markets now turning the corner from the depths of that bear in to a more bullish mode. Fewer stocks are now in bear market mode, and that can only help the bigger picture for the bulls, but we'll see about that over time. We'll see if they hold up, or whether this is just a head fake up. The oscillators are solid on the advance, so it makes you think things are not bad at all on the way up off their recent lows. For what it's worth, the bearish stocks are now turning a bit more bullish over the past week, or so.
S&P 500 1320 is the key level for the bulls and the bears to be honest. The bears certainly don't want to see 1320 get taken out, or they know trouble is dead ahead for them as it's blue skies for the bulls with a forceful move over S&P 500 1320. The bears would be forced to cover, and cover fast, if 1320 goes away. The long-term trend line that comes in at 1320 is something the bears are having nightmares about. It'll go from nightmare in their dreams to nightmare in the real world, if they can't hold the bulls off. The fight, if we get that high, will be amazing to watch at that level. The bears will do anything humanly possible to prevent this type of long-term technical breakout. 1292, and then 1267, is key support levels. The bulls shouldn't allow 1267 to go away if they are serious about taking out 1320 over time. Interesting times are upon us, and as I stated earlier in this letter, earnings will have a lot to do with whether we get through 1320, or not, in time. Interesting days are upon us folks.
Now, in the very short-term, RSI's are nearing 70 on the major index daily charts, so now is not the time to get extremely bullish. In time, we'll need to pull back once we get to or near 70 RSI tags.
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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