Stock Market Running Up....Sentiment Playing Out...What Next?

By: Jack_Steiman

The relentless run up is continuing as the bulls are letting the bears know they'll be remaining busy for a while. Now we will have to deal with some selling soon as the short-term sixty-minute charts are overbought and flashing negative divergences. Sometimes, in very bullish environments the negative divergences can be worked out through time instead of price, meaning you unwind those divergences and overbought with very little price erosion. If that happens, you know you've transferred the energy from bear to bull. In bullish environments time works off the overbought conditions. In bearish environments it's price that works its way lower from any push up on those oscillators. We'll know very shortly which way this will work itself out. We saw the market futures turn north last night after Europe gapped up and kept on running higher. We opened strongly and closed very nicely, which now means the bulls have four large gap ups that kept running higher all day.

These aren't small gaps that would be fairly easy for the bears to eradicate. Not at all. These are very powerful, open gap ups that will require tremendous work to take back. Open gap ups of this nature are very tough on the bears. Just taking back one of them will be very difficult. For the bears to be able to take out all four gap ups, and create new lows, could only occur if there's the type of news no one wants to think about, meaning banks going under, etc. If we don't get any terrible news on that front, and we get lucky enough to get better news on the manufacturing front, then it's lights out for the bears, and their party will be over. Keeping in mind only the Dow and S&P 500 really didn't see bear-market conditions, many of the necessary elements for the bear to be complete. Sentiment got to extremes. Froth got slaughtered. Many big names saw bear-market selling to the tune of 30-50% haircuts. These are interesting times with the bulls now creating more headaches for the bears than they can usually handle. Is the bear market or correction over? Very possibly, but there's quite a bit more to learn as the days unfold. We have to see how the market daily index-chart oscillators handle selling. Then we'll know more definitively.

It's almost unfair to be a bear. The sentiment indicators were at bullish extremes for nearly two straight years save for two weeks. The market didn't care, and kept rising, slowly but surely. We get to oversold extremes for two weeks, and the dance for the bears is possibly done. Stinks to be permanently bearish. Very little satisfaction. Two readings at below -10% is all this market seems to have needed to have turned the tide from bearish to bullish price action. Two years versus two months. It's no fun being a bear. I do want to make it clear to all of you that just because things seem bullish now, we will have to be patient before declaring the down side officially over. Again, it's imperative that we watch the behavior on those daily oscillators when we sell next. If they act impulsive in nature, then we have to think about whether the down side is really over. Those oscillators do not lie. Their movement will be very telling about the market's future. So be patient and let the market talk to us. Only when we experience some painful selling can we learn the truth about the market's true intentions.

Since we cleared 1940 by just a bit, I won't say we've officially cleared the 50-day exponential moving average, quite yet, but we're working on it. If we keep running, the next big resistance is at S&P 500 gap at 1985. Above that we're seeing the 2000's, but let's see if we can get through 1985 first, and before that, hold this 1940 area. We need another strong up day to pretty much put it to bed for good for at least a while. 1900 or the 20-day exponential moving average are now very powerful support. As long as we hold above that level, the selling should be contained with the market looking for higher still over time. A loss of 1900 wouldn't be the best news for the bulls, but, for now, we use 1900 as a key area of market support for the S&P 500. A day at a time here as we learn more about the market's longer-term intentions. Looking more bullish, but far from certain.

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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