Asia has been on the path of trying to shake off the disaster in Japan. A huge move up last night in this area of the world ignited the futures higher in Europe, which then moved our futures higher as well. We were able to hold onto gains ahead of the open, thus, a gap up ensued. We were almost overbought on those 60-minute charts, thus, any gap up would put the short-term oscillators at overbought. That didn’t stop the market from trying higher all day, however. The bull market acting as if it has a bit left in it before the next breather. The bears made a few attempts from time to time to bring the market down, but they eventually gave up and allowed the market to make its way higher. Sometimes they recognize, those bears do, that a market wants to get to a certain level, and that the best course of action would be to just let it happen, and then try shorting once again.
With the market trying to get back to its most recent highs it seems as if the bears are saying, go ahead and get back there if that’s what you really need to do. Volume being lighter than previous months doesn’t mean things are bad here. It tells you that less folks have confidence, but the sellers aren’t kicking in, so you stay with the trend in place, and don’t flip to the other side just because the volume isn’t exploding. We didn’t see sellers all day today, and thus, the message is clear for now. It was a solid day for the bulls with some important earnings around the corner not deterring the bulls from keeping a bid under this market. There’s lots of confidence that things are indeed improving. The action today suggests the bulls have a belief that things are rolling along in the economy just fine.
Today we saw a change in the trend a little bit, and for the better, as the financials made a move higher. However, it was nothing to write home about. A move up isn’t something to get excited about until we get a follow-through that means something technically. If we study ETF Direxion Daily Financial Bull 3X Shares (FAS), we see that there’s a gap at 31.00, which needs to clear with some force before we can get excited that the financials are about to participate more aggressively in this bull market. Any move up to 31.00 that ultimately fails creates the same disappointment the masses are getting used to by now. So it would be real nice if those financials could get rocking above this gap down top level. If we start seeing 31.30, or higher, on a closing basis, the shorts are going to feel trapped and start covering their shorts more aggressively. That will add fuel to the move up. Let’s watch this key 31.00 level in the days ahead and see if the bulls can finally add this important group of stocks to the bull party.
Sentiment is a key component of this game when it reaches extremes on either side of the ledger. Too many bears create a move higher, and too many bulls create a move lower. The trade gets full when the spread gets too far apart, bulls to bears. We see that the bearish sentiment is starting to pick up some. A few months back we had a bull-bear spread of 38+%. Way too high. We sold off. The spread is now at 28.5% with the bears up to 23.1%, or the highest level in quite some time. Not as high as I’d like to see it by any means, but nothing to get disappointed about if you’re a bull. Anything below 30% is good to see, and certainly being 10% off the recent highs is a good start in terms of doubting this bull market. I’d say that things are far from perfect as lower 20’s in terms of the spread would be ideal, but anything around these levels is more than acceptable.
This morning we got the ADP report on job creation, which is always reported two days ahead of the big jobs number that comes out on the first Friday of each month. The ADP report has often been unreliable in terms of what will be reported two days later. But it was hard to ignore the good figure that came out at 200,000 jobs created. It gives hope, maybe false hope, but hope, that the report on Friday will be a good one. Maybe it will be even better than the current expectation.
The market is begging for some good news on this front. Without it, we could see one decent pullback quite suddenly. It’s hard to know just how much is already baked in even if the number is good. I do know, however, that the market would love to see something special here. There’s no way the economy, and thus, the market, can hold up if these numbers start to deteriorate. It’s clear that the market will give it up fast if it feels as though this area of the economy just won’t get going.
Friday will be a big day, so be prepared with what you want to own going into it. We’ll see if we can blast through 1332 to 1344, or the two most recent highs. It will be tough at the very least up there.
Peace,
Jack
