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Weekend Analysis

Gap Up But Resistance Holds...

Tue, Nov 24 2009, 09:25 GMT
by Jack Steiman

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The overseas markets were up nicely last night. Asia started the run and Europe followed.
This led to our futures starting higher and running throughout the night. They didn't fade as the morning wore on allowing a run up to the 1111 S&P resistance zone. We also breached slightly the 2148 Nasdaq gap, but ultimately these levels proved to be too tough near term for the bulls, and the day was spent pulling back off these levels although solid gains were made across the board. The bulls can't really celebrate because the massive resistance levels were again too tough. Not enough buyers.

The bears certainly can't be happy, because once again there was no follow through on the recent selling. The losses were taken right back by the bulls. The market is spending a lot more time near the top of the range rather than the bottom of it. The longer that persists, the less likely it'll be that the bears will get what they want and more likely the bulls will dance again. You can't argue with the overall message as it's being repeated just about every day. Weakness gets bought. No sustainable selling. This message has to be taking its toll on the bears. You wonder when then just might give up and let things advance further. For today, the bulls can at least feel good about the advance, but there's no reason for them to feel too good as they failed once again at resistance.

There were pockets of the market that just didn't do all that well today given the overall market advance. The commodity stocks, despite the selling in the dollar, had a big reversal with many stocks down huge off their tops from green to bright red. That makes you wonder as that's a change of character. However, upon studying the charts of this group, there was still no technical damage done to their patterns. The banks seemed to lag all day, and there seems to be a pattern forming there as those stocks are under performing on an almost daily basis. If they can hold on laterally for some time longer, that gives the bulls hope that it's just moving laterally to unwind to oversold which will then allow for another leg higher. It has to be watched closely as those stocks overall are not keeping up with the rest of the market overall.

See today’s charts at SwingTradeOnline: COMP (Nasdaq Daily), SPX (S&P 500 Weekly Charts), MID (S&P 400 Mid Cap), TRAN (Dow Transportation Daily), VIX (Volatility Index).

There was a small window of clear complacency not seen in a long time today in the put call ratio in the options market. The first three readings today were under 0.60, and we haven't seen that in quite some time. This level of complacency can be directly attributed to the failure to break out today. Too many taking one side. After the third readings, the numbers came up some, but spent the entire day below 0.70, which isn't the best news for the bulls.
It's probably just a one-day phenomenon, but this will have to be watched closely for sure over the coming days to make sure this isn't a new pattern emerging, because if it is, the market is in trouble. Nothing to worry about yet, but I'll keep a close eye on it.

The dollar fell from the start today, but did recover some as the day went along, PowerShares US Dollar Index Bullish (UUP). It’s fighting with all its heart to stay above that critical 75.00 level where long-term support comes in. If that level were to be lost convincingly, the dollar would be in some desperate trouble it doesn't want to think about right now. It's not good for anyone except, it seems, the market. The market wants a weak dollar, but in time, we don't want it too deep as citizens of this country. Watching our currency erode is no fun. What a dichotomy, each day, to want a good market but have to root for a weak dollar to get it. I'm not committed to a good or bad market myself, but I know that the majority of my folks, and most people I speak with, want a good market for their future retirement. I couldn't care less, because I can play short or long, as long as I feel I have the market direction understood.

Well here we are again near the top but pulling back. The overall action remains quite strong and clearly on the side of the bulls and against the bears. As long as complacency doesn't become a problem in the days and weeks ahead, we should be staying on the long side of things, picking off plays here and there. This is NOT a market to be aggressive with.
An old story, I know, but that's reality, so let's deal with it. Nice and easy here. Buying weakness remains the best strategy.

Published on  Tue, Nov 24 2009, 10:19 GMT

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