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Market Holds Well...Earnings On Tap...

Jack Steiman from SwingTradeOnline.com at 01/11/10


Market Overview:

The market had every excuse on planet earth today to just fall out of bed. A very bad jobless report hit the street when there was a loss of 85,000 jobs.
Expectations were for a loss of 10,000 jobs. The market didn't like the news initially as the futures took a pretty hard hit although not nearly as hard as I expected once the news actually came out. If the Dow futures had fallen one hundred points, I don't think there's a bull around who would have said that doesn't make sense. The market has been doing very well and most feel it's time for some selling thus when the news hit, it was sell time. The selling lasted all of about one hour. The Nasdaq started getting the first bid as the financials were somewhat overbought and were lagging all day today. As the day progressed everything started to climb gradually. Everything closed basically on their highs. Solid strong action once again for the bulls. The bears have to feel a bit snake bitten these days. The market was truly impressive today considering the morning news.

The bears have tried very hard to keep this market from rocking higher and to some degree the overbought daily conditions have done the job for them.
However, the market is grinding higher for the time being. The bears are looking at poor economic news, overbought weekly charts and somewhat overbought daily charts not to mention a 31% spread in sentiment bulls to bears yet they can't sustain any downside action. It may require the bull bear spread to shoot over 40% which historically has been the end of bull runs. Doesn't have to go that high to end things but the bull run is so strong here it may take that kind of extreme. For now, no matter how many red flags there are, the bulls remain in firm control of this market. Shorting is just not working here.

See today’s charts at SwingTradeOnline: COMP (Nasdaq Composite Daily Chart), INDU (Dow Industrial Daily Chart), SPX (S&P 500 Large Cap Index Daily Chart), TRAN (Dow Transport Daily), Biotech Holders (BBH) Daily Chart, XLI (Industrials Select Sector ETF).

We played another game of rotation today. The financials got very overbought on the sixty minute time frame charts and needed to cool down. That combination along with the bad news on the jobless front should have knocked this market to its knees. However, the recent laggards, the technology stocks, got violently oversold with many of them printing RSIs in the low 20's and thus they blasted off today. Rotation is the game. Money is still not leaving this market. As long as this process remains in play, the bears have no chance. Big money is making sure this market stays up for now, for whatever the reason may be. We don't have to understand why it's rotating around. It is and thus we must respect it.

There have been some very good earnings numbers thus far from stocks such as Bath Bath & Beyond (BBBY) and Shaw Group (SHAW). We also had good news today from United Parcel Service (UPS) which raised guidance. Next week we have the earnings season getting started in earnest. In two weeks it gets very intense. Next week we see numbers from Intel (INTC) on Thursday and J.P. Morgan (JPM) on Friday. Alcoa (AA) kicks it off on Monday. The bears seem to be shying away and I can understand why. With some strong showings already, maybe they're a bit scared of getting too aggressive on the short side worrying about good earnings taking individual stocks higher along with the rest of the market. The bar has been set quite low on many of these thus it's no shock that news is coming in better than we thought so far. These CEOs know what they're doing folks. Say things stink even if they don't. Get people negative on their company and then spring a surprise.

I can go on and on about how this market seems to be inappropriate based on news that is coming in from all parts of our economy not to mention other parts of the world. There are bankruptcy's all over the place. States are in bankruptcy for crying out loud. Some countries as well. The market doesn't care for now and that's the only message you need to be focused on. We have been long only since March of 2009 and will stay that way until we get the type of action that suggests things are no longer good for the bulls.

Sector watch:

The Transports, Cyclicals, and Industrials all broke out to new 52-week highs this week. See our 4th and 5th charts today. A rotational theme continues in place off our March lows. When one area or group gets severely extended it takes a breather for a while, while other groups in strong basing patterns pick up the slack and get rotational flow. Most groups continue to remain in strong bull trends including the Aerospace, Financials/Brokers, Commodities, Retail and key Technology areas among others. As long as these key sectors remain in bullish trends our bias continues with the long side. At some point we'll get strong volume weekly reversal candles on the major indices likely out of 70+ RSI territory which will set the top for a while. Until we see that reversal our bias continues to remain with the trend in place.

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