Tuesday, February 15, 2011

Market Overbought Again On The Daily Index Charts....

It's the same ancient tale. Wash, rinse and repeat. The market goes
higher until the daily charts get those 70 RSI readings, and then it
sells off a bit to unwind some. Once unwound just a modest bit it
starts its journey once again to the up side. At some point that'll
stop. The RSI, stochastics, and MACDs, will some day really sell off
when everyone expects it not to.

For now, you give the market the benefit of the doubt, and know that
once it unwinds, some of the moves back up will once again resume. It
would be just perfect if we'd sell hard for a while to allow those
oscillators a real rest, but they may not come for a while longer. So,
for now, you continue to play with long exposure only. Shorting makes
modest sense, and those of you who have tried it have doubtless
learned a hard lesson about shorting a primary up trend. That doesn't
work very often for sure.

The market has been ripe, and I can't argue with you for a pullback
being necessary, but the earnings keep coming in on a positive note,
thus, the bears have been constantly frustrated. Earnings rule the
roost, and we are seeing mostly very strong numbers from the majority
of sectors. This is not allowing the bears to get any near-term
satisfaction other than a 1-25 promotion period that gets immediately
bought up. For now it really is wash, rinse, and repeat. Stay with the

The commodity stocks continue their overall rampage as it has become
clear to all that inflation is the real global conundrum, even if
printing press Bernanke refuses to tell the truth to this country's
inhabitants. He's trying to tell us that inflation isn't terrible. All
you have to do is take out the cost of food, health care, and energy,
and all is fine. Too terrible that these are the things we use most,
but as long as he tells us we don't count them, he's satisfied to lie
to us all. Whatever!

The commodity world knows differently and that's why they continue to
lead this bull market higher. Lots of participation everywhere else as
well, but nothing has led like those commodity stocks. Inflation is
the real conundrum from a total world perspective. The stock market is
telltale us that. Look at FedEx Corporation (FDX) tonight. They
warned, and said part of the reason is because of higher fuel prices.
Inflation folks.

The market is very overbought folks. Don't lose sight that within bull
markets we do get overbought, and sometimes quite a bit so. RSI's are
in the mid 70's on the Dow. Low 70's on the S&P 500, with the Nasdaq
right near 70. Many other index charts are well above 70. There will
have to be a pullback very shortly. Be prepared for it and don't be
shocked when it hits. A excellent pullback doesn't end the bull
market, but it does offer up more opportunities. That's something I
wouldn't mind seeing as it's getting harder and harder to find
excellent set-ups due to highly compressed moves already in place.

If things could pause for several weeks, or even months, it would be
very healthful and set us up to get very aggressive. Can overbought
get more so? Sure! But, make no mix that the higher up we go in terms
of the oscillators, the harder we'll fall when it snaps. I need not
remind you of how quick things can turn down. We've all experienced
this unexpectedly. Don't get caught off guard.

The Nasdaq has fantastic support down at 2755/65. This trend line has
held perfectly thus far. 2860 is the ancient high from 2007. This is
unlikely to get taken out should we continue higher, even through some
small-term pullback's to unwind a bit. 2757 is also the 20-day
exponential moving average. 2755/2757 is very powerful support. On the
SPX, 1305 is the 20-day exponential moving average, with 1275 the
50-day exponential moving average. I'd like for this market to visit
the 50-day on the SPX, but I am not counting on it. The bull market
remains in break down, but small-term things are perilous.
Don't get overly aggressive, but keep some scratch in the game.

Source: Fxstreet.com

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