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

Stock-Markets / Stock Markets 2011 Feb 15, 2011 - 03:36 AM GMT

By: Jack_Steiman


It's the same old story. 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 little bit it begins 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 little sense, and those of you who have tried it have probably 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 selling period that gets immediately bought up. For now it really is wash, rinse, and repeat. Stay with the trend.

The commodity stocks continue their overall rampage as it has become clear to all that inflation is the real global problem, 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 bad. All you have to do is take out the cost of food, health care, and energy, and all is fine. Too bad 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 problem from a total world perspective. The stock market is telling 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 good 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 good set-ups due to highly compressed moves already in place.

If things could pause for several weeks, or even months, it would be very healthy and set us up to get very aggressive. Can overbought get more so? Sure! However, make no mistake 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 fast things can turn down. We've all experienced this unexpectedly. Don't get caught off guard.

The Nasdaq has great support down at 2755/65. This trend line has held perfectly thus far. 2860 is the old high from 2007. This is unlikely to get taken out should we continue higher, even through some short-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 love for this market to visit the 50-day on the SPX, but I am not counting on it. The bull market remains in force, but short-term things are dangerous. Don't get overly aggressive, but keep some scratch in the game.



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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© 2011

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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15 Feb 11, 12:32

"will some day really sell off when everyone expects it not to. " given the current position of the vix you're already looking at extreme complacency.Anymore and the market will be completely hypnotised by Fed policy.

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