Stock Market Bull Marches On....

Stock-Markets / Stock Markets 2011 May 01, 2011 - 06:15 AM GMT

It was an interesting week for the stock market. It had the big news from fed Bernanke on how he would deal with rising inflation that seems to be getting a bit out of control. The Government tries hard to down play how bad things are by saying inflation isn't so bad if you REMOVE food and energy. Makes you laugh with how stupid that is. Shows you how little respect they have for anyone. Food and energy are the two most important aspects of one's life, but we won't count it. We do as citizens, however, and it's really getting insane out there. Fed Bernanke told the world that, although inflation is moving higher, he is far more fearful of the dreaded D word, deflation.

He told us all that he will be keeping rates low for quite some time and that no new rate hike cycle is going to be getting under way any time soon. The market said that's just fine with it. The market held onto early gains the day the fed made the announcement and moved higher still. Nothing dramatic to the upside, but higher is higher within a bigger picture bull market. If he had said the wrong thing with regards to a more aggressive rate hike cycle being upon us now, the market would have initially sold off quite hard. But that did not happen. I believe it would have recovered quickly based on the idea that he's raising because the economy is now healthy enough to handle some rate hikes. Bottom line is he kept things exactly as they were and the market liked it.

There are headaches that exist out there folks. Many of them are quite concerning. Let's start by talking about sentiment. Two weeks ago we had readings of 41.6% more bulls than bears. Not a good number for the bulls at all. Historically this type of level led to selling in the near-term. We did get some selling which ended up acting as a handle. Not bad at all.

In that selling period we saw the numbers come down to 35.8% where we are right now. A slight jump from the prior week, but we are down about 5% off the highs. Seems like a good thing, and it is, but the problem is that 35.8% more bulls to bears is still a bad number. It can cause a selling episode at any time. Readings below 30% are best. Of course, readings below 25% are ideal. Liquidity is keeping the market rolling along, but be aware of the fact that we can get hit at any time due to sentiment issues still in play. Better than it was for sure, but not where we really want them to be.

There's an even bigger headache out there that seems to worsen by the day. It's called energy inflation with the price of oil completely out of control these days. It's now over $113 per barrel, and you have to wonder when the market is going to say that the price of oil is going to be too much for the economy to handle. Once again, it's the liquidity from the fed that is keeping this issue on hold as far as it affecting the market too adversely. But even liquidity won't stop the market from falling if this trend continues too much longer, one would think. $4 per gallon for gasoline is now in the cards. Is $5 per gallon too far away? If oil goes back to $140 per barrel, you can count on it, and there's no way the market will be able to handle that. Oil is a major problem with no end in sight to just how high this thing wants to go. It's a big time red flag that gets more annoying to the bulls daily.

There is yet another problem for the bulls here short-term. I know folks, it does seem like a lot of headaches doesn't it! However, we all know by now that when RSI's get to 70 on the daily chart it's trouble. However, when it gets to 70 on the daily and weekly chart, that's not good for the bulls short-term. Let's go over the numbers. For the Nasdaq, the daily RSI is at 70 with the weekly level at 66. Getting very close to the magic 70/70. For the S&P 500 it's also very close with the daily RSI at 69, and the weekly RSI at 68. The Dow ism is worst of all with the daily RSI at 72, and the weekly RSI at 73. When all three major indexes get there at the same time you really have to reign in your near-term bullish thinking. We are just about there and close enough for that to kick in at any time. The daily and weekly oscillators are flashing a strong red flag here folks. Careful with ANY new plays from here on in until those oscillators get some real unwinding. A set-up has to be pretty special to put it out.

The really good news is the Russell 2000 is at all-time highs. The other major indexes took out their old resistant highs. The market is on breakout and the fed is pumping away day after day. The bull market is still very alive, but there are some real things to worry about, as I mentioned above, so please be wise and lose the greed. There's always the months and years ahead to play and do well. Day by day with some real caution short-term.

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.

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 constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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