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Jack Steiman from SwingTradeOnline.com at 10/15/09


So we finally said goodbye to 1080 S&P 500 after trading in between the gap for a month or so. One break down below along the way that was quickly recovered. You had to figure it would take time to get through since the gap down from 1080 to 1060 in October 2008 was on massive volume and started another strong leg lower. Lots of willing sellers at that magical 1080 level.

I had talked about how when these big levels get taken out, they usually get done so by a gap up and out. Intel Corp. (INTC) along with JP Morgan (JPM) and CSX Corp. (CSX) were the catalysts to get that job done from last night through this morning. We opened just above and churned for quite some time, putting the breakout in doubt. However, we never even fully back tested before edging our way higher throughout the day. A strong finish sealed the deal for the bears today.

With many huge earnings reports tomorrow, the volatility isn't likely over, but for today you can't argue with the price breakout, negative daily divergences or not. It's really important to study the internals on a day like today and see if they confirm price. You want to see a strong advance/decline line. Probably the most important aspect of all as it tells us if the market broke out on just a few heavily weigh ted issues.

That was not the case fortunately for the bulls and unfortunately for the bears as advancers led decliners by nearly 3-1 across the board. Volume wasn't spectacular but the number of stocks participating was very strong so good enough. 1080 now becomes very important support on any selling and should not be taken out on a closing basis if this rally is for real. Solid work by the bulls today and finally we can say we have a breakout worth noting.

Maybe what was best about today was that many big cap technology leaders didn't participate all that much. Baidu, Inc. (BIDU) and Apple Inc. (AAPL) were dead for the most part and that's a real positive for the markets as we will need new leaders to go higher because these stocks are basically full and on a high pole. When leadership shifts to different sectors and stocks that's something to feel pretty good about . New blood means other company's are starting to show better patterns on their charts that can carry them and the market higher while the old leaders rest and catch their breath.

We saw leadership in many secondary and further on down the line places today. It was interesting in that INTC printed a horrible black candle today yet the market closed near the highs. Again, a leader not leading off great news but somehow the rest of the market, instead of tanking out the way INTC did, carried the way upward and out. That's a nice change of character for the bulls. This process will need to con tinue for a while and it looks to do just that.

So now that we're through 1080 on the S&P 500, we have to look at these open wedges to see where the tops of them are in order to know where the market will run in to its next headache. On the S&P 500 the number is 1110 and on the Dow it's roughly 10,200/10,250. These leave the door open for further gains, roughly 2%, before we have to take off some plays.

Often, when a market is doing as it is now, we can breach above the trend line at the top of the wedge intraday only to put in a long tail to head fake the bulls in to believing we're getting through. You want to see the reversal candle at the top of the wedge before shorting it for a short term play. There's always the 1 in 10 shot we'll clear and stay cleared. See the failure candle and then short a bit. A bit o nly as we'd still be in a confirmed up trend. Let's see what happens should we get to the top of the wedges.

If we clear 1110 in time, we have the full 50% retrace from the 1576 highs to the 666 lows at 1121. Many bear markets, if we are still in one, often retrace a full 50% thus that would be an interesting level to watch. However, let's remember how tough 1110 will be. The point here is, we have a confluence of resistance coming in at the 1110/1121 level and we all know by now that when you get multiple resistance or support levels near the same area, it's that much harder to get through. You definitely don't want to be loading up longs as we get closer to 1110. It'll feel real good and greed may be playing songs in your mind, but know the risk involved at the very least. It'll be high.

For now, we watch big earnings tomorrow from Citigroup (C), Goldman Sachs Group (GS), Google Inc.
(GOOG), and International Business Machines Corp. (IBM). No shortage of big time leaders showing us just how the economy is or is not improving. We remain only in longs because of the clear buy signal in place that has never for a moment gone away over the past many months, although it did feel that way a few times fo r sure, which is why it's so important to know the critical levels of support when a trend is under way and what it takes to break that trend. We came close a few times recently but thus far we're all good.

One day at a time as always.

There is no other appropriate way to play this game.

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