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Bases Still Set Up Bullish...

Jack Steiman from SwingTradeOnline.com at 12/15/09


It's an endless pit of nothing. I know that's what it feels like folks. A market that seemingly can't move. No volatility. Hours of the market trading in such a small range.
We're not used to that after the experience of having the market blasting off from March until September. Seven sweet months of beautiful gains that spent very little time pulling back. A market that wanted nothing but higher seemingly every day. Then we get four months of this range bound market and we yearn for that type of market once again. Isn't going to happen but that doesn't mean we won't see another move higher in the near future. I believe we will.

The S&P 500 has been trading in a very range that consists of 1085 on the bottom and 1119 on the top. Most of the trading taking place between 1090 and 1110. Two whole percent. No fun! Stocks acting funky. Up one day and back down for no reason. Others down but then coming back. Whipsaw is the only word that accurately describes the past four months. Keep in mind that the longer a base takes place to complete, the more likely it is that the trend that preceded it will take shape once again. This bodes well for this market, even though the action is creating a whole lot of doubt. It's understandable.

The market started slightly higher today and spent the whole day trading in a very narrow range. You could leave the computer for hours and come back to a market at exactly the same price. Not enough buyers to take this out for good and no real sellers to take it down. The usual stalemate. However, yet another day trading around 1100 on the S&P 500 and that's bullish. We're starting to spend more time at the top of the range and with the overseas markets higher, this allowed our market to open higher and frustrate the bears yet again as they just couldn't get this market to fall in a way that would satisfy their anxiety about this market being too close to breaking out. Their anxiety is running high for sure.

See today’s charts at SwingTradeOnline: RUT (Russell 2000 Small Cap Daily), WLSH (Wilshire 5000 Daily), NDX (Nasdaq 100 Daily), DJUSCA (Dow – US Gaming), DJUSCH – Dow – US Chemicals).

Just as the bulls suffer fear when we're near the bottom of the wedge, the bears are suffering up here. I know they can claim the market hasn't made the move but that's just masking the fear they feel. Any gap up, small as today was, is overall bullish action and today was surely that. We closed off the highs but most sectors held up well. Another day that sets up the ultimate move higher I feel is likely coming. To that end, the small and mid caps broke out of their bases today. That certainly isn't bearish.

The financials continue to be the wild card here. They aren't exactly screaming higher but the daily charts on many of the key stocks in that sector are setting up better here as the oscillators unwind nicely. No guarantee that this brings about a move higher but it's a good sign that most of the top stocks in this area are holding up without breaking badly while things get a chance to get oversold. To the contrary we are seeing many sectors acting beautifully, such as the semiconductors and the transports to name a few. Rotation continues while many sectors break out.

These breakouts keep the bears at bay as many are taking place on strong volume and good solid breadth. The sectors performing poorly are showing little volume while the breakouts are on better volume trends. Make no mistake folks, the market will not be able to blast out unless the financials decide to take the journey with the rest of the market. I am watching that sector with great anticipation as I do think they'll get going in time.

The dollar is in a more positive state technically. However, that doesn't mean market failure. How many of you noticed how on Friday we saw a very strong The PowerShares DB US Dollar Index Bullish (UUP) and yet the market was green. A change in character.
Something we'll be seeing in the future? Food for thought if nothing else. Proves that maybe we don't have to think the market is toast if the dollar starts performing better down the road.

It would be great if we could have a strong UUP day again soon and watch the market re-act to it. If it holds up, it tells me a real positive change is taking place we'd all like to see. A strong dollar and a good equities world. Not out of the question folks and we'll get our answer on that soon enough. I'm excited about that possibility. One day does not a trend make but it was a significant change in what we've been experiencing, so let's hope it's the start of a trend to come.

The 1085 area is all we really need to watch for now on the S&P 500. That and 1119.
Everything else seems to be insignificant. Those two levels will determine the fate of this market and, you know, I believe in time we make the move higher. Just too many strong bases setting up so I have to defer to them. Nothing is for sure but that's how things are slowly setting up.

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