Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Overbought Stock Market is Not a Sell Signal

Stock-Markets / Stock Index Trading May 19, 2009 - 06:55 PM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleIn the face of some deeper selling last week, we saw some strong positive divergences on the 60-minute charts set up on the MACD from well below the zero line on Friday. That was a signal that said it was time to go long into the teeth of the down side.


It felt bad, but then again it always feels bad when the market is selling. If the divergence had set up above the zero line, then it would be more risky going in and believing the market would turn things around. The masses were getting pretty bearish by Friday afternoon. Still, lots of fear out there that this market is going to simply give it up on a moment's notice. Folks are trained to go short or not believe in this process that's been ongoing since March, and this gives the market the opportunity to trend its way higher still. Why anyone would fight positive divergences that are at the right place technically with oscillators unwound is beyond me, but many do. It's good news for the bulls that the bears don't really believe.

On Monday we saw this rally get started early and gain energy all day in what was a clear trend up day. The bears could not muster up any energy to bring this rally down. Whenever the market sold off a bit the bulls came in and squashed the idea of taking this down. We closed on the highs with some very important levels of resistance being taken out along the way. What makes it all the more impressive is the fact that we did that without a gap above those levels. It normally takes a big gap up above critical resistance to get through them, but that was not the case on Monday. We opened below, churned at those levels and then ran right through. The levels of importance we took out were Nasdaq 1697 or that gap down below the neck line of 1700 last week. 1701 was the 50 day exponential moving average on the 60 minute time frame chart and 900 was gap on the S&P 500. Super action overall that the bulls have to be very happy about. The bears have no excuses here. Being unable to defend important support on lighter volume tells you they are in the market here. The sentiment remains bearish thus positive for the bears.

We now turn our attention to the place where the real story is written about this market. The financials, of course, were the culprit on the way down and we are watching them closely here -- i.e., the Financial Select Sector (XLF) -- to decipher whether the market has legs for further upside in the midst of all that's going on in the economy. They are acting as if the worst is behind them, but that can be a lure before the bottom falls out. We don't know yet, but for now they are acting in a fashion that suggests further upside in those stocks and, therefore, further upside in the overall market.

The other place we check for strength is the Nasdaq or the true market leader, i.e., the PowerShares QQQ Trust (QQQQ). Higher beta with faster growth potential. Is the buying come in there as well? We can see the answer to that question is a resounding yes. The leaders in those leading sectors are doing well and that's the key. As long as that continues on you have to keep a more bullish bias. We watch those charts to make sure they're still on their buy signal, and it's hard to find many, if any, that are not still on a buy signal. Keep in mind that overbought is NOT A SELL SIGNAL. A pause signal sure, but not a sell signal. Overbought is a sign of overall strength.

The breakdown on the Vix is a close below 30 and we are getting very close to that. Should that 30 level break, we could see a very sharp move higher in equities. We hit 30.00 during the day with the close at 30.22. The bears need to watch that level closely for if it goes they will be forced to start covering quickly. With the S&P 500 heading back towards the recent high near 930, this could be setting up for a breakout in the market and a breakdown in the VIX. Very interesting times.

The market has done what it needs to do thus far. It took many attempts by the bulls to take out that 875 level, if you remember. It was a level of great frustration for quite some time. We'd get up there and breach, but we just couldn't get through on a closing basis. Finally we did and when we did the market continued to race higher. When we got very overbought we warned of a test back to that 875 level over time. We got down to 878 and held as we should. At the same time the RSI's and stochastics unwound perfectly and then we set up those nice positive divergences on the 60-minute charts. The market is acting in a fashion that says it wants more. Don't worry about whether it's about a new bull or a bear market rally. That's all irrelevant. We only care about getting the signals right as they present themselves. For now we are on a clear buy signal that was never broken although it felt like it was when we pulled back. careful about the distinction between feeling and knowing. Emotion makes you feel. Calm allows you to know. Until thesis is broken, the benefit of the doubt goes to the bulls. 875 is strong support all the way down to 854 or the 50 day exponential moving average. One day at a time. Holding longs.

Peace

Jack

By Jack Steiman

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.

Sign up for a Free 30-Day Trial to SwingTradeOnline.com!

© 2009 SwingTradeOnline.com

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.

Jack Steiman Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in