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Market Settles In To A Range....Lateral Base Continues...

Jack Steiman from SwingTradeOnline.com at 11/10/09


Of course, that doesn't mean we can't and won't pull back because we will. We will have selling episodes that feel bad, but with the bears unable to take out those 50-day exponential moving averages with force, there is nothing bad going on for the bulls. We did break below on a closing basis on the S&P 500, but barely. The Nasdaq lost by a bit more but the Dow never broke. I wrote a nightly commentary on this.

Without all three major indexes closing below the 50-day exponential moving averages, the bears still hadn't taken control of the market. The S&P 500 clung close, even though it closed below, and then shot back through on good economic, and even better earnings reports. I also don't want you to think I am wildly bullish because I am not. I am far more bullish than bearish as the buy signal still remains clearly in place, but that doesn't mean go nuts here. The same care and safety must continue so we can weather the bad days and not feel like the world is ending.

We are now very overbought on all the major index charts on the 60-minute time frame. We will need to pull back soon, especially since we're so close to major resistance on the S&P 500 at 1101. It's unlikely that we'll be able to just break through so intensely overbought. It should be the type of selling that is contained now by the 50-day exponential moving averages underneath. 3-4% should be the maximum selling now. With strong internals on the up days you'd have to think that the bulls will undoubtedly defend critical support now.

They held these 50-day tests recently and with the strong move made back above, they aren't going to be willing to give it back. The 60's unwind quickly so it shouldn't take too much to get them neutral and then oversold if the selling gets strong enough. With the daily charts nowhere near overbought, this makes the selling to come less likely to be too intense. We can go a bit higher but selling should ensue soon. For now, any overbought selling can be used for buying good set ups which exist just about everywhere.

See all of today's charts: INDU (Dow Industrial Daily), SPX (S&P 500 Weekly), SPX (S&P 500 Daily), RUT (Russell 2000 Daily), WLSH (Wilshire 5000 Daily), DJUSAE (Dow Jones US Aerospace & Defense Sector)

Today saw the market gap up after the futures shot up on strong action overseas. From Asia to Europe and finally to us. They held all morning, although there were some selling attempts. We gapped up, churned for a few minutes, and then ran higher all day. The reason today was important was because you wanted to see the bulls follow through after taking back lost 50-day exponential moving averages on the S&P 500 and Nasdaq. The fight to get them back came fairly easily, but now we wanted to see if the bulls could put a strong gap day under their belt, and they accomplished it without too much of a headache from the bears. Solid action for the day with the bulls now having added support under their belts with today's strong gap up. Every gap up helps folks. They should not be taken for granted and now we have solid support added to the bullish scenario.

The dollar just continues to explode. (See: (UUP) PowerShares DB US Dollar Index Bullish, which is not one of our charts today but can be seen online at Yahoo Finance.) All the gains from the additional added shares are now basically gone. The dollar bears continue to have their way with things.
Breakdown after breakdown is taking place with just a few small oversold bounces along the way. It gets a few small positive divergences on the shorter time frame charts as things get oversold but they get wiped out rather quickly. Whenever the dollar hits anything resembling strong resistance, it just coughs it up and turns right back down. Very negative action, that for now, is showing no desire to turn the tide. Sadly, this means the market is doing well. A bad dollar equaling a strong market isn't exactly the best of both worlds, but it is what it is.

With the market so close to 1101 on the S&P 500, I'd recommend watching a bit right here. There are so many wonderful set ups around, and they can be played, but most of them are very overbought, and like the market, could use a small pullback. When it comes, I will fire out more plays. For now, please move ahead slowly. If we blow through 1101, we'll be violently overbought and will need a back test thus we won't miss anything and we're in two plays.

Be appropriate, not greedy.

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