Jack's Wrap - Bulls Hold Strong.....


Friday March 25th 2011
Bulls Hold Strong.....
by Jack Steiman www.SwingTradeOnline.com

A tough group these bulls. They don't like to give things too easily. Just when it looked like things would fall apart as they lost those 50-day exponential moving averages, they fought back strong and took those levels back in no time at all. The Nasdaq in particular gave up that critical 50-day at 2712 with relative ease. No real fight as those high beta froth stocks were taken down in a big way. No mercy on some of those stocks as they took 20% hits. Others were hit quite a bit more than that off their most recent highs. Not pretty as many stayed oversold and refused to bounce as their prices seemingly went lower.

Google Inc. (GOOG) and F5 Networks, Inc. (FFIV) stand out as two that wouldn't get bids at 30 RSI on their daily charts. They went down to the low or mid 20's before moving back up some. People were buying the moment they got oversold, but they gave no satisfaction as their bad earnings reports took over and wouldn't allow for upside action. However, the market happily is not just a few stocks, and thus, it was able to overcome the bad action seen in many places and do what it has done for a long time now and that is to rotate the dollars around enough to keep the market afloat. That's been the most important aspect of this, and really, any bull market. A few stocks that lead, and then stop leading for a while, don't necessarily kill the entire market. Big money finds a way to take the market higher through rotation.

As one sector dies another gets too oversold and the buying begins all over again. In a bear market, or a market rotating out of a bull into a bear, it would not find rotation. It would simply stop finding a new place to run to. The money would leave the market for good, and things would begin their process of eroding away. For now, we can say the bulls have found a way to keep the bears away from starting a new bear market. I always have my eyes open to all possibilities, so I won't say that can't happen. But for the moment there is no strong evidence that the bulls are losing their grip on things

To show what type of market we're in, you need look no further than the chart of Research In Motion Ltd. (RIMM) and what took place after their earnings report Thursday night. The stock was absolutely annihilated on a bad report. They told the world margins were eroding as were many other aspects of their business. The stock got slammed, but the rest of the market did not. That's beautiful behavior for any market that's in a bullish phase. The market will punish a particular stock for missing their earnings numbers, but they won't attack anything else necessarily related to that stock. They let everyone else function on their own worth. If you report well, or have reported well prior, then you will be given grace until it’s your turn. In bear markets the whole sector will be taken down if a stock reports badly. These are the little subtle hints about where we are at the moment. It doesn't mean it'll be this way a week or two from now, but it is that way for the moment, so we need to respect the message that is flashing today.

One sector that once again can't really get going the way the rest of the market has is those pesky financial stocks. They aren't terrible but the best way for me to describe them is that they're getting "dragged" up, almost by force, because the rest of the market is hanging in there so well. It would be really nice from two perspectives if they got a bid. Number one, it would be strong technically for the rest of the market. Secondly, it would tell us that fundamentally things are improving. We still have not seen strength bigger picture for many years from this sector and may not do so for years to come.

Later in the day we finally saw some selling. The short-term 60-minute charts got extremely overbought with stochastic's in the mid to upper 90's, and those all important RSI's in the mid to upper 70's. That's a combination that guarantee's some necessary selling in order to unwind from very overbought levels. We saw that take place late, and there's nothing wrong with that. We're already somewhat below 70 on those RSI's already. In addition, the Nasdaq and PowerShares QQQ Trust, Series 1 (QQQ) printed Doji's off the up trend, but the Dow and S&P 500 did not. It would be no shock if the market sold some early next week. That wouldn't be bad since it would simply unwind those oscillators a little further. Since the daily charts are nowhere near overbought, it shouldn't take too much more unwinding to get this market heading back north.

But again, don't be shocked by some deeper selling early on next week. 2712 is now strong support for the Nasdaq, and that's about 1-2% away. Nothing too bad. If we can get through the gap at 2760, the next resistance is at 2808, or yet another gap. The one headache we'll have to deal with possibly down the road technically is that the MACD's on all the index charts will form daily negative divergences if we get to equal, or new, highs as will the weekly charts. There will be a price to pay off of that, but we'll worry about that when the time comes, if the time comes at all. For now, we stay with the trend and keep some exposure to the long side.

Do something nice for someone this weekend. Spend time with a child if at all possible.

Peace,

Jack


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