Stock Market Sentiment...Looking At The Technical World.....

By: Jack_Steiman

The market is showing some very interesting pattern set-ups on the daily index charts. The oscillators on the attempted pullback on those daily charts are holding nicely with many of the bear market stocks not showing a move lower on those oscillators as their price pulls back. A sign of many bear-market stocks bottoming? It could very well be, but that answer only comes with certainty when we experience the next strong down move. So far so good. Many stocks are in very deep bear markets, even though our indexes are not. Individual stocks from all over the stock-market world are experiencing some horrific moves lower. There are some signs based on positive divergences that this process may be in the very beginning stages of turning around.

Too early to be certain, but when you see daily chart positive divergences after a prolonged down trend, you have to take notice. When some of these rallied recently they mostly failed on their first test of the 20-day exponential moving average from underneath. When they sold a bit they found quick support at the gap just below. Those gaps created when the market rallied off the recent 1810 S&P 500 lows. A good sign to see the bulls fight at the first gap just below, which created some decent reversals off the lows today. A sign of hope. This market is extremely complicated, but I have to trust those positive divergences that live just about everywhere we look. When they are created they will normally last more than just one good bounce off the bottom.

There's usually some life to them and should last at least a month or so. It would be highly unusual for them to give one blast and be gone and done with. That's what you would experience from a short-term sixty-minute positive divergence. Daily ones should have some staying power, thus, my belief we should get to and exceed those daily, 50-day exponential moving averages before heading back down some. That means there should be more upside left. It doesn't have to be immediate, but down side should be somewhat limited now unless the unforeseen occurs overseas. let's hope short-term most of that is built in to the market. Interesting times as we discover where the market really wants to go short- and long-term. A time of great learning for us all.

Two weeks ago the updated number from the bull-bear spread was actually -14.5%. This past week was at -13.3%. Next week's number will probably read roughly -5-8%. Week after week now below zero, which tells me that the bears are really rocking in now, and, of course, too many bears equate to a market that wants higher simply due to strong, short-covering rallies. There doesn't have to be any great fundamental reason for a rally. Enough shorts in the market will accomplish that feat. If we look at things fundamentally you'd have a very hard time buying anything, but the market doesn't care about fundamentals, if the bears are loaded up, and apparently they are.

The other thing is if the fundamentals get a drop of good news out of the blue that should be enough of an excuse to get the bears running for cover. The bears aren't the gutsiest group of players. They cover on any fear that comes their way. Things are bad everywhere, so it's possible that good news just isn't out there, but if one pops up out of the blue they will cover quickly. Remember, though, that we don't need good news if there's too many bears. The market can rise without it, but any good news would really get them running. Sentiment is important only at extremes. Three consecutive minus readings are an extreme, and, thus, needs to be given the respect it deserves. It guarantee's nothing, but sure needs to be respected for its possibilities.

S&P 500 1940 is the 50-day exponential moving average. That's the number we'll be focusing on going forward. If the S&P 500 can cross above with a bit of force, then the market may be able to surprise a bit to the upside short-term. Critical support comes in at 1895/1898 gap, and also the 20-day exponential moving average at 1900, so the 1895 to 1900 is very important support for the bulls if they're ever going to get this over 1940. So now, it's really just a two percent game between 1900 and 1940. It's unclear who will win, but there's reason for hope short-term if you're a bull. Medium- to longer-term is still very much up in the air folks. We'll deal with that down the road as needed.

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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