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Stock Market Roars Back.....

Stock-Markets / Stock Markets 2011 Feb 17, 2011 - 03:14 AM GMT

By: Jack_Steiman


But you just can't kill the beast someone once wrote in a song. No different here, as the beast known as the bull market, won't go away quietly. It gets a drop below overbought, then comes raging back without even a fight by the bears. It's as if they've just given up, which makes me nervous. But you can't argue with a market that uses any selling to come right back the very next day. The futures started ticking up overnight, which told me here we go again. You just can't keep this thing down with any momentum. You wonder who's buying these futures. The fed? Could be, but it doesn't matter does it. It catches on with many others joining in and up she goes. We gapped up and spent little time churning before moving higher still. There was one powerful pullback intraday, but that, too, got bought up as they rolled along.

That allowed the market to close very close to the highs of the day, and also allowed the Nasdaq to close above price resistance at 2817. Not a blow out above, thus, it's not really safe, but above price resistance, nonetheless. Once it failed intraday you would have thought that it, but not this crazy bull market. Shocking how quickly that pullback was bought up. Shows you the power of what's waiting in the system on any selling. It takes about one percent before the orders start roaring in. Bottom line is the market closed nicely, and above 2817 Nasdaq, which opens the door to trying to get up to the 2007 highs at 2861. Time will tell if that's possible but it's only one and a half percent away.

One has to wonder the affect of all of this easing by the fed, and all of the dollars being printed with regards to the value of our dollar. The chart of the dollar is collapsing, and ultimately, that can't be good for the citizens of this country, but the fed, the printing press fed, seems unconcerned about that for now. He has to know, one would think about the ramifications of all the printing, but he truly doesn't seem to care about the future. It seems as though he's focused only in the moment and will try to deal with the fallout when it hits years from now when everything is totally devalued.

In a perfect appropriate world, the dollar would rise along with stocks, but the inverse relationship is holding up overall. Some days they trade in tandem, but overall, they trade inversely and sadly. In the case of the printing press, it means bad things for the United States dollar. To sum it up, we celebrate a good market today, but we will pay dearly for this behavior in the years to come. No one knows when, but it will hit us all when we least expect it.

The market has been grinding its way higher for months. You get a move up, and then you get a handle, or bull flag, that ultimately rises once again. Until this market shows that this pattern won't work, it's best to stay with the patterns perceived future based on the recent past. You really need to avoid shorting a market such as this, and I bring this up tonight, because it's important to stay with the trend and not fight it as some of you are now thinking of doing based on emails I have received. At some point shorting will work. Maybe that moment is upon us, but those of you who wanted to start shorting a month or more ago, must be glad you didn't short just because we were overbought. It would have been very painful for sure. Just stick with the trend, and accept that at the end of the move. You'll have a loser, or two, but it won't be too bad because we'll exit quickly on the big reversal stick. No way can anyone hit 100%, so be prepared for a small hit by being long a bit when we reverse down. No worries. We'll deal with that later, but for now, stay away from going against the trend as much as humanly possible.

RSI's are at 75 on the Dow, 72 on the S&P 500, and just shy of 70 on the Nasdaq. Basically, they're just above 70 on all the other major index charts. We all know that markets stay overbought far longer than they do oversold. It's been that way forever, and isn't likely to change any time soon. Because we can stay overbought much longer than anyone would expect, it's telling us to stay long, but it's also telling us that when taking on new plays, make sure the chart of that individual play is not overbought as well.

Try to buy plays that have unwound stochastic's below 50, if not near, oversold at 20. Get RSI's that are decently below 70. 55, or lower, would be even better. In a different environment you wouldn't have to be so careful, but you really do need to be careful right now. It's a game of appropriateness at all times. Slow and easy here at overbought.



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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