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Stock Market Nearing A Top Short-Term... Still Solid Overall...

Stock-Markets / Stock Markets 2010 Oct 14, 2010 - 04:23 AM GMT

By: Jack_Steiman


First of all, understand that the market is healthy. Next, you need to understand that it is overbought. Not violently so, but overbought, nonetheless. 70 RSI's across the board, with stochastic's in the middle 90's, is what overbought looks like. It does not mean the market can't continue a bit higher first, because it can, but 70 RSI and a 95 stochastic warn us that there is an imminent selling episode in the near future. It is what it is.

It feels like we can't sell much, but you'd be surprised what can happen off a combination of overbought oscillators, such as we have now. It would be normal to have a 3-5% pullback from these types of conditions once the rubber band finally snaps. It would not be unhealthy. It would not be bearish. To the contrary, it would be bullish as it allows for things to unwind to where we can move higher once again.

For now, because the trend is higher, you always have some type of exposure even if those plays take a hit short-term, because you can always stay overbought longer than you think possible. Some stocks can hang in very well based on their set-ups even if the market sells. I would tell you that being fully involved right here carries more risk than we've seen lately. But again, some exposure is appropriate. Remember, overbought is not a sell signal. It is a warning that a pullback is coming, but nothing more.

We gapped up today on some solid earnings reports from JPMorgan Chase & Co. (JPM) and Intel Corporation (INTC). Technology and those lagging financial's got a bid overnight. This riled up the futures allowing for a nice gap up at the open. The market held that gap and gradually raced higher the rest of the day, until those RSI's reached near 73 across all the major index charts.



Jack Steiman is author of ( ). Former columnist for, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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© 2010

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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