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Stock Market Prints Dojis....Still Strong Overall....

Stock-Markets / Stock Markets 2010 Oct 26, 2010 - 03:01 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleYou look at the market and wonder when it will turn a bit. When will it sell off from this up trend to unwind those overbought daily oscillators? We have at, or near, 70 RSI on all the major index charts for weeks now, and a selling phase for a few days would do wonders to set things up very nicely. You often get this to happen when you print a doji or a spinning candle off a nice up trend.


A doji means you open and close at basically the same price, which is exactly what happened today on all the major indexes. It means the sellers have caught up to the buyers short-term, and thus, the market has at least the opportunity to sell some in the days ahead. Not a slaughter, but a good chance we'll see some selling very short-term, which will allow for a cooling off period that this market desperately needs.

This took place today when we gapped up on good overseas action and a down dollar over night. The market blasted higher after the gap up open, but then spent the rest of the day pulling back slowly, but surely, and finally ending up with those doji's across the board. The up trend is strong, so there's no guarantee for this pull back short-term, however, the odds are decent so you should be prepared for it. It tells you that you should be laying off getting too aggressive in the very short-term.

It doesn't mean you can't buy anything as things always set-up in different places, but you should not be getting involved in too many plays for a little while. Let better opportunities set up. Again, no guarantee we'll sell off short-term, but the set-up is definitely in place for such an event to take place. That said, the market is still healthy overall.

The most interesting aspect of this market by far is the bifurcation taking place in different areas on a longer-term basis. The market has rocked higher for some months now, but one area that refuses to participate is the financials, of course. They absolutely stink to be blunt. They are being held up and dragged up in a fashion that only allows them to be bad right here. If this market were in the mood to sell hard the financials would be getting annihilated here. They have the worst patterns technically with many of them trading in clearly defined bear markets.

They were awful again today, however, that should come as no shock to any of you by now. The mortgage headaches hanging over their heads will not go away. The news is bad there with no real solution in place to remove the headaches. My best advice to you would be to make sure your financial advisors are not playing them and neither is your 401K. Tell your financial advisors that you don't want financials as part of your portfolio. Wait for them to improve and show some guts before taking them on yourselves with your daily trading. Bottom line is they stink in a big way. That's reality for the moment. Adjust accordingly.

The one thing the bears can't deny is the action throughout the rest of this market. It doesn't really matter what sector you focus on away from the financials. They are just about all acting as if they're in a bull market. Call it a strong bull trend. The wording doesn't matter. They are powerful and are showing no signs of letting up as their technical patterns remain strong. With only one bad sector ongoing, it's going to take some news not yet out there that will allow the bears to finally start eating away at key support levels. There are so many of them as well.

Loads of gap support zones. Lots of trend lines, and lots of good exponential moving averages. Many of them are bunched up together as well, and this adds to the security of those support levels. It will take more than overbought daily charts to start making those numbers disappear in favor of the bears. The market is strong and showing no signs at this time of letting go of the trend in place as the majority of the sectors are in up trending patterns for the moment. Play what is until it isn't.

Excellent support remains at the 1060 level on the S&P 500 should it decide to sell a little harder at any moment to unwind, or to ratchet up, more fear although there are really no sentiment issues at this time. The confluence of a strong moving average, and horizontal support, along with trend line support, will make taking out 1060 very tough. But only two percent below all of that is the strongest of all support or the 50-day exponential moving average.

The Nasdaq has huge support at 2425, three percent below current price. This market is one where you want to take gains as you go because of the elevated nature of those daily oscillators, although I would welcome some selling to cool things down. It's very hard to feel great about a market moving up once you see the daily charts flashing those 70 RSI readings everywhere you turn. This is why we're taking some plays off here lately. You have to be protective when things are too overbought. The market is strong. Short-term we could have a headache or two, but the trend remains bullish for now.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, 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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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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