The market has shifted in the past four weeks, or so, from trying to break down to actually breaking out on the Nasdaq, and it's getting very close to doing so on the S&P 500, which is a necessary confirmation for the bigger picture. The Nasdaq, as well as the rest of the key index charts, was testing time, and again, a the 200-day exponential moving averages. Four consecutive tries in a very short period of time. Each test down looked nastier than the last one with the bears feeling assured that the breakdown was finally upon us all. We saw the bears give it up all four times, with the bulls hanging in right at the breakdown, and following through with a move up of their own. Great to see repeated failures, if you're a bull, because eventually the bears ran out of steam after so many efforts, which allowed the current move up we're experiencing now.

The Nasdaq spent very little time taking out the bottom of the large gap down at 3000, and it didn't take very long after that, to test and break above 3025, or the top of that ugly gap down. Since then, it has moved up while the S&P 500 has been testing higher in its wedge that it's yet to break out from. A forceful move over 1425 will take care of that. You wonder about the evolution of this market, and why the market refused to break below those key 200-day exponential moving averages. I'd say, don't think too much about it. It is what it is, and it seems the market is seeing something we don't yet, and that's fine. Just be sure never to argue with that message being sent out for the time being. Don't let your emotions interfere. We are where we are for reasons we can, and can't, understand. We can understand Mr. Bernanke, but the action seems to be saying more than that. Just stay the course and play what you see, not what you think should be.

Now the market has to look at itself and say, where do I stop and pause to refresh, as it's almost overbought on the short-term 60-minute charts, and nearing overbought as well on those key daily index charts. Not a great combination to have short- and mid-term charts flashing 70 RSI's across the board. The 60's were overbought, but then unwound some, but are still right at those overbought levels that usually allow for some selling. We can deal with the short-term 60-minute charts being a bit of a headache, but you can't escape things needing to unwind when you add those daily index charts at 70 RSI's. Not quite there yet, but knocking on the door with the average being around 67.

It is not a sell signal. Overbought has never been a sell signal as timing the moment things will pull back is difficult, because it can stay overbought for a while. If there were massive negative divergences, with overbought, that would indeed be a sell signal. But, because that's not the case, you don't short trying to catch a move lower. You use the coming weakness to buy instead. You can try to short if you like, but if things stay overbought for a while, you won't be very happy. While it may be best not to add new longs until things unwind, I don't think shorting is the best answer here. Things will sell, but again, it's best to use weakness to buy down the road.

When looking at the internals of this move up, versus how things sold off on the previous move down, you will notice that the volume trends have been more favorable overall. The very best days have the highest volume, while when things sell off some, volume is not very heavy at all. That's a positive bigger picture, for sure. You always want the better days, or the whole trend overall, to be more on the bullish side of the volume ledger when markets are climbing higher. If the volume trends were reversed, it would be a real red flag for the future, but, for now, the trends are clearly more favorable. In addition, the oscillators have acted well with strong movement higher along with price. The oscillators are not lagging behind price, and that, too, is a good sign. Nothing bearish on the price gains technically.

So yes, we are nearing very overbought conditions across the board, and things will need time to unwind, but the bigger picture still looks favorable for down the road action. We don't have to understand it, and if things turn we will adapt, but, for now, things remain more positive for the bulls.

Have a great weekend!

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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