Friday April 8th 2011
Gap To Gap...Hesitation At February Highs...
by Jack Steiman www.SwingTradeOnline.com
What a boring market. I'm sure every one of you feel the same way. This is what happens when a handle is trying to be put in place. The market finds an area of resistance it will struggle with, but also finds an area of support it appears it doesn't want to lose. Those lines seem to be clear, especially on the Nasdaq where we find gap resistance at 2808, which is stopping all rally attempts. We hit 2808 today on the nose for the high of the day. The bottom has two areas that come together as one. The 20-day exponential moving average is at 2759 with massive gap support at 2760. 2759/2760 will be very tough for the bears to take down and keep down. Today was boring at its best. After a gap up that tested 2808 we spent basically six trading hours in a back and forth market. Neither side could do a thing all day. They both tried.
Buying got sold, and afternoon selling got bought up. Remember, please, that handles are meant to separate you from your dollars. The idea is to frustrate you at every turn. No matter what you do, whether long or short, you will struggle. Today was a lesson on keeping some exposure for sure, but not taking on more than a few plays maximum. Keep it light so if we move down a bit off the top and stocks struggle a bit, you won't panic out of them. If you're in too many plays the inclination is to run out of a few plays just to play it safe. Just in case things get out of hand. Less is definitely more in handles folks. So the parameters are set up, and neither side may clear with force for several weeks. Just the way it is folks. The handle move is on. Expect whipsaw. Expect gap ups to fail. Expect gap downs to be bought. Expect both sides to end up frustrated for some time.
There are certain events that take place in this game that have a way of taking place no matter what may be happening in the world. The market fell hard, and came back off the bottom with a nice surge. Yet somehow, when it got to those gaps, or the old highs as we saw, on the Nasdaq and S&P 500, the market stopped cold in its tracks. No money, or bulls, left to take them through that resistance. No bears around to blast it down. In other words, when a market has a plan, good luck trying to take that plan away. It seems to find a way to stick to that plan no matter what takes place away from the market.
No matter what events may be going on from earthquakes to countries going bankrupt can disturb the process that seems to be planned. I don't necessarily understand it, but it's as if the market has a mind that can't be seen. That mind has a plan, and will tune out all outside matters until that part of the plan has been satisfied. So with this market needing a handle over a certain amount of time, you can ask yourself how it's holding up, or why it's not breaking out, but in reality, you're only wasting your time and energy trying to figure it all out. There are no answers. Just what needs to happen at any and all cost. We can't know how deep the handle, although 2760 is solid support. We don't know how long in time this whipsaw continues. Just accept the fate for the short-term and plan accordingly.
The market has two major headaches it has to deal with versus the monster that sits by its side and says all is well. Don't worry about a thing. On the negative side of the ledger we have oil at roughly $112 per barrel. Getting totally out of hand and makes you ask the question, when is the president going to announce the use of our own oil reserves so as to knock the price of oil on its can. The second major negative is sentiment. A nearly 42% spread of more bulls to bears. This is not good for anyone who is bullish. On the bright side of the ledger is the number one most important element in the stock market. That, of course, is liquidity.
Mr. Bernanke is making sure we are flooded with dollars that can support higher stock market prices. His single goal being to keep this economy humming along at any cost, including runaway inflation, which we are starting to see more and more of, although he denies exists, as if we're all unenlightened about the truth in front of our noses. By the way, a bag of oatmeal I buy from the health food store is now $8. A year ago it was $5. Don't tell me we don't have massive inflation being created as we speak. Oil and sentiment can knock the market on its bottom short-term, but liquidity will always save the day in the end. We'll watch to see how this all unfolds in the weeks and months ahead.
The poor financial stocks just can't make the move, although there is hope in the pattern on the daily chart. They got so close to taking out gap resistance, but rolled over and failed. However, the rollover for these stocks could easily turn into a shoulder on the right side of an inverse pattern. Time will tell, but if those oscillators behave just right, then this could turn out to be a bullish pattern in the longer run. What a gift that would be to the market as it would then try to breakout with a strong measurement higher.
I don't want to get into numbers now and create expectations, but the measurement is significant. A lot of work is ahead of the bulls to get the job done, but the pattern isn’t hopeful. The transports, a sector that has somehow thrived in this push up in oil, finally gave it up today. But it's way too soon to say that further headaches await them. The fact that so much bad news previously couldn't kill them, today's larger move down may be a one time event in order to unwind things on the daily chart. These stocks will need to be watched very carefully if oil doesn't take a hit down pretty soon.
Folks, bottom line is it looks like things are going to be quite boring for a while. Adapt and adjust. Don't let the boredom move you to do things with too many plays that will come back to haunt you. 2760 and 2808 Nasdaq are the numbers to keep focused upon in the weeks ahead. Hopefully days, but I think weeks. The longer we handle the more bearish some will get, the deeper those oscillators will unwind.
Have fun this weekend. Do something nice for someone. Play with children if you're lucky enough to do have the opportunity.