Watch These Levels In The Dow And S+P
Wow! That’s all you can say about
the action of the past week. Looking at the
markets on a short-term basis, we saw nothing but positives as the week came
to an end. Thursday’s action speaks for itself. Futures were down huge off
the terrorist attacks in London…following European markets in their
footsteps. But the lows were seen early as the markets reversed the bad
news. We have taught you in the past that these types of positive reversals
almost always lead to upside testing…just like negative reversals lead to
the downside…not unlike what happened on 6/23. We have also taught you in
the past that when markets buy the bad news, it is a bullish sign. This all
led to Friday’s big one day move. Before we get into the “now what,” let’s
go over Thursday’s action a little bit more in-depth.Â
It was a positive that both the DOW and S&P broke below the
support areas we told you about…(10,253 and 1188)and then finished above
the levels. It was also positive that the NASDAQ never did break support
levels…even on an intraday basis…and the SOX never even came close. When
the shorts realized that the best for them was had, they scrambled and
covered…fueling the move back up even more. That led to Friday. Simply
put, all the short term resistance levels we told you to watch were
breached…DOW 10,433…S&P 1205…and NASDAQ 2077. Not only did the NASDAQ
break above short term resistance at 2077, but it also took out a more
important area  at 2106…an area that held the NASDAQ back since
January. The one fly in the ointment about Friday was the lack of
volume. The one fly in the ointment about Monday was lack of volume. Too
many names are moving out on literally no increase in volume. This may come
back to haunt things in the future but we will deal with it when we have to.
It’s a positive that NEW HIGHS expanded markedly on Friday.
As we have been telling you, NEW HIGH figures have been strong even though
the “market” has been going nowhere. It is a positive that the Russell 2000
and the Midcap 400 are at new highs. This fits in perfectly with what we
have been telling you about secondary stocks. It is a positive that World
Markets are in gear and actually stronger than the U.S. market. It is a
positive that Advance/decline figures continue to be strong on a daily
basis. Lastly, it is a positive that the percent of stocks in good technical
shape continues to improve.
This market has been very tough to play. This market has
teased the upside and downside for months. In mid-April, this market had a
chance to enter a new bear. As quick as can be, the market put in a low and
turned back up. At that point, the technicals were horrible. We mention that
because the exact opposite is happening now. The market is now teasing the
upside while the technicals are in much better shape. So, instead of
predicting, here are the levels that if breached, would give the market
another leg up. Those levels are Dow 10657and S&P 1229. We don’t mention the
NASDAQ here as the old high is at 2192…so the NASDAQ has some work to do
first. Of course, the NASDAQ first has to work on holding this breakout.
Also, as always, keep a close eye on the SOX as it is now back to teasing a
strong breakout above 450. This will only add fuel to the move if it occurs.
Just keep in mind that most major indices are still down this year and how
tough things are. We just believe things are lining up in the right way for
the market to finally have a chance for another leg up. This is the best
chance the market has had.
Near-term, the market needs a rest and I would not bet against
it…and earnings now start to come out in droves. Do not play the
numbers…play the reaction to the numbers.Â
Lastly, sentiment stinks. All our measures are much too
bullish…which is bearish. We never want to play with the masses and the
wrong way crowd. This is a secondary indicator though…but just wanted to
keep you abreast of it. The VIX and VXN remain at multi-year lows indicating
complacency. The % of bullish advisors is too high and bearish advisors are
too low…and lastly, except for the normal perma-bears who would remain
bearish if the Dow went to 20,000, there are just too many bulls out there.
Gary Kaltbaum