And a good fight it is. Both sides are trying so hard to get through, while neither one really has any control. Sure, the bulls moved the averages close to a strong breakout level today and certainly have had the bears on the ropes a bit lately, but in the end, both sides are fighting hard where it matters the most, and that’s at those powerful 50-day exponential moving averages. More on those levels later on.
We had the news the market wanted last night out of Greece as the political party voted in was exactly as hoped for by Wall Street. The futures naturally blasted up by as many as 100 points on the Dow above fair value. As usual, the futures eroded overnight to the point where we opened to the down side on the S&P 500 and Dow, while showing some small upside action on the Nasdaq 100, which led up all day thanks to Apple Inc. (AAPL), the world’s favorite stock. It’s hard for good news to keep its positive feel on the markets for very long as many are anxious to short and sell due to global fundamentals. To be honest, it’s hard to blame them. By days end, the markets were mostly higher by a bit, but nothing to really get excited about in terms of saying we’re now on a clean breakout. Action isn’t bad, but it’s definitely not the type of action that says it’s all in time. You buy, or short, whichever you think is right, but you don’t overdo it by any means. The days of heavier playing will arrive in time as always, but that time is not currently upon us.
Mr. Bernanke will be extremely interesting on Wednesday. Here’s a man who definitely does not want to create hyper-inflation. He knows that one too many QE programs will do just that, thus, deep down he’d love to avoid ever doing another one again until he’s gone from office. Let someone else worry about it, but he definitely wants no part of it, if at all possible. He knows it’s just a temporary fix to a much larger problem that it cannot solve. He recognizes the market is like an addict that needs his bad medicine. Sure it’s bad for me, but I need my fix. Mr. Bernanke knows that more debt is not good, and he knows more inflation is not good, but his sole concern is to keep the markets moving higher. The only way that’s going to happen is either the physical implementation of a new QE program, or the threat of one. He would rather it stay only a threat.
He talked up the fact that he’ll do one in a heartbeat should our economy need it based on actions in Europe. He knows the stock market up trend line is at 1260/1265. Trust me folks, he knows. We’re now well above that, thanks to his threats of doing another program. He may choose to back off now that things are better, but he knows if he backs off to hard, he’ll kill the market. I expect more promises on Wednesday, but definitely no action. The market may take a short-term hit on that, but nothing close enough to warrant an actual act for more easing. I think he’ll say less, but make it clear that no one needs to worry. That would be perfect medicine for the short-term. He’s a master technician in how to keep things moving along without actually doing anything. Good for him, and, probably, good for the market short-term.
The markets are over those critical 50-day exponential moving averages, but not by enough to declare it safe for the bulls. The Nasdaq 100 closed at 2895, but that’s only three points above those 50’s. The S&P 500 is a bit better, but not by much. It closed at 1344, but those 50’s are only 6 points below at 1338. Half a percent does not a breakout make. The Nasdaq 100, only three points above, is really meaningless. So the action is better, but non-confirming at this point in time. The top of the current wedge in place is at 1400/1415 on the S&P 500, thus, it is possible we could get that high on this move over time. Not straight up, of course, but overall. If we get that high, it is very likely we will form negative divergences on the S&P 500 so down we’ll go again. Hanging in there on the long side a bit makes the most sense, but getting aggressively long is not the way to play. 1300 is massive long-term support for the S&P 500. 1338 to ultimately 1400/1415 is resistance.
Again, keep it light as we move along.