Friday April 27th 2012
Market Holds Well...Lateral Continues...
by Jack Steiman www.SwingTradeOnline.com
This is what the bulls wanted to see take place; a nice unwinding in the key oscillators on the important index daily charts. They wanted to see price hold well, while MACD's, RSI's, and stochastic's rock lower. This was the result they wanted, and it’s the result they have gotten thus far. There is never a guarantee that this process will continue, but the results, thus far, have been quite good, and therefore, it's likely to continue.
Something can always pop up out of seemingly nowhere, but you can't play from that type of fear. You can only play what you see in the moment. Like life, the charts, too, are all about the moment. They are signaling that the market is creating a base/handle from which to trade that will someday send stocks higher still. They are not showing the type of action that would suggest the market is ready to reverse from bull to bear. It can happen, of course, but the signals are not that right now. If they show up, adjust to them, but until they do, play the signal being sent in the here and now.
Today saw the market stay a bit overbought on the short-term oscillators. That does not happen at all in a bear-market environment, so again, trust what you see in the market day by day. Because of this, for now, I continue to believe that things will hold up even though, in time, we could see lower prices still. The bull market hasn't left, even though it may feel like that on some level, which is understandable.
Let's talk about emotion and lateral-agnostic markets. I'm not sure many of you realize this, but the market is agnostic or lateral, most of the time. Strong moves to both the up side and the down side occur pretty rapidly much of the time. Once a move is over a market, depending on whether we're in a bull or a bear will spend a lot of time forming bases, which are used to unwind up or down, overbought or oversold, oscillators on the daily index charts.
When markets go into that phase of lateral/handle, it feels different than what just took place, whether things fell hard or rose rapidly. You get a bit of a counter-trend play for several weeks, if not several months. This lateral/handle counter-type move takes people from being bullish to feeling more bearish, or if it's a bear market, from feeling more bearish to more bullish. It's all counter to the emotions you were feeling prior to the lateral kicking in.
That's the emotion of the stock market. When those counter-trend moves kick in you want to run for the hills. You feel as if there's too much danger because the trend just doesn't seem to be working any longer. Often this leads to some very poor trades that, if left alone, over time, would work out quite well. Just try to keep in mind what type of market we're in and things should work out better. You'll need patience, but that's a big part of this crazy game.
Spain got downgraded last night two full notches. Certainly, this type of news would kill their stock market. Not the case. The bad news had already clearly been priced into that announcement. The reaction that came from this news stunned the masses as Spain exploded higher. At some point, folks, the news is in. Their stock market has been in free fall for quite some time now, and it's quite normal for the ultimate bad news to be bought up as that's the low point in the evolution of their problems.
Markets look ahead, and with the majority of the bad news now in the market, they simply said enough is enough and headed higher as sentiment there is now extremely bearish. Way too much so. The oscillators now look more bullish as they're crossing up from deeply oversold levels. No guarantee, but it sure would help our market if the Euro-zone markets could start to get a bid. We shall see in the days ahead.
The market is hanging in there, but is not in full-bull mode at the moment. You should be cautious, but bullish. I still don't think shorting this market is the way to play, but I also recognize that a move down to 1340, or even 1325, is possible in time. Stay with the trend in place, however. The trend is up overall. 1422 is very tough resistance. Let’s see if the bulls can make a move above that level, especially if the Euro-zone markets start to help out instead of being down most of the time. 1357 is the first important support level. It has been tested twice now and has held beautifully. If that level does get taken out, we should see 1340 pretty fast.
For now, the market is fine.