Tuesday, February 22, 2011

Rapidly Approaching Long-term Resistance.......

What a fantastic ride this has been for us. Fun for sure. Larger
picture, as long as printing press Ben is active, the fun should last
a lot longer. That doesn't mean the market won't take some time out to
pause and sell down some. There are a plethora of reasons to expect a
sell off some time soon. The three primary ones are major resistance
on the Nasdaq (chart included) at 2861. Add strong resistance on the
transports and tiny caps (charts also included), and you have a lot of
sectors close to major resistance. The following reason is overbought
daily charts, and finally, you have confirming, very overbought,
weekly charts on the major indexes. RSI's in the upper 70's on the Dow
and S&P 500 on those weekly charts. Stochastic's a hair under 100. It
doesn't go higher than 100.

The froth is building. We've loved every following of it, but the
froth is getting ancient and still building. You can see the primary
reasons to reckon we'll sell off soon, but again, you never small a
primary bull market, because you simply can not time the moment the go
will start. You can go very broke waiting. This doesn't mean you
shouldn't, or can't, start raising more cash. I believe you should.
Again, no shorting, but small-term it doesn't make a whole lot of
sense to be vacant ultra long. It's best to be cautious, because
historically, the market has had some very nasty pullbacks when the
oscillators have gotten this high for an extended period. On the
weekly charts in particular. Can take another week. Who knows, but
again, not getting overly aggressive, because the risk reward is
beyond doubt the way to go for now.

Now let's talk about this market. Do not mix a strong pullback for the
end of the bull market. Once this pulls down hard most will reckon the
bull market has come to an end. It is not vacant to be over. Earnings
are powerful for sure, and ultimately, that's what moves a market. If
earnings are strong people will want in, and if the current trend
continues, as it is likely to thanks to Ben, then the bull market
should hold very well over the rest of the year.

Look at the promotion as an opportunity to get very long. It won't be
simple knowing when to go back in hard, but the market oscillators
will lend a hand in that arena. The market will bring about some dread
in the near future, and that's what it will need. We've had a 30-plus
spread on the bull bear ratio for weeks, if not longer. Retail is
rocking in and buying all dips. The place-call buying is exploding on
the up side. These are all hints that sooner than later we'll have to
see a strong promotion episode. Welcome it.

When looking at today's market it is very fascinating. We saw some
major sell off from the recent leaders, especially those in technology
and the commodity world. Apple Inc. (AAPL), Mosaic Co. (MOS) , Potash
Corp. of Saskatchewan, Inc. (POT), Agrium Inc. (AGU), and Walter
Energy Inc. (WLT), to name just a very few of them. All of them place
in topping candles for the near-term, yet, these leaders didn't take
the overall market lower, which is really bullish behavior. Classic
bull market behavior for sure. Rotation! This is the very reason why I
tell you to never small a bull market. Stocks can pull back very hard,
yet, not affect the overall market.

Normally, when leaders, such as these, pull back and place in topping
candles, you'd expect the whole market to come racing down with them.
But that's just not happening right now. This is also what makes
calling the top of the go so hard. The market has yet to show that
it's vacant to come down hard and right, although, as I said, that
could happen at any moment. It's also why you have to have at least a
drop of exposure, even at extremes of overbought such as we have. Stay
with the trend, and use corrections to buy, rather than trying to time
a shorting period.

Support is all over the place for this market, and the reason why It
will be very tough for the bears vacant forward with respect to
getting too much down side action, before we reverse back up as things
unwind. There are gaps galore and critical exponential moving averages
so close together. When one is taken out, then immediately there's
another one to deal with.

You don't get a lot of "thin air" moving lower. Just too many levels
of support in a tiny area. For the Nasdaq, we have first support at
2812, which is gap support. Below that we have support at 2800 down to
2780 where there is the 20-day exponential moving average. For the S&P
500, we have gap support at 1329. Below that is the 20-day exponential
moving average at 1316. Just one percent below that first gap support.
On and on we go with support after support close together.

In closing, the daily index chart RSI's are in the low to upper 70's.
The weekly index charts are in the mid to upper 70's. 79 on the Dow.
This means there is extreme risk small-term for a powerful reversal
lower to right this intense level of overbought.
Stochastic's 99.5. Can't last, but again, you can't accurately predict
the moment this caves in. Keeping some long exposure is what you do,
but don't go overboard.

Give yourself a break and have a fantastic 3-day weekend.

Source: Fxstreet.com

No comments: