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Jack Steiman from SwingTradeOnline.com at 11/11/09


When markets get overbought you usually expect a fast drop lower, and that may still, and actually, should take place. However, we are still in a clear up trend off the March lows and this market is trying to fight off those overbought 60-minute time frame charts with all its muscle.
Today seemed like the perfect day for some unwinding and although we got a drop, it wasn't very much to get excited about thus we head in to tomorrow still overbought on the short-term time frame charts only.

We started out the day with a small gap down and though the bears tried a few times to sell things off hard, it didn't take too much selling to get the buyers trying to pick up some plays. As the day went on you could see there just weren't enough sellers to really unwind things and get some decent selling. We finished the day mixed. Stocks remain in good bases and patterns overall as today did nothing to hurt those set ups. Bottom line is today did nothing to hurt this bull market we're in. Stubborn bulls even at overbought. The way it is for now.

For bull market to remain just that you need to see strong leadership from the big boys out there. We're seeing that whenever we get some selling. Stocks,such as Apple Inc. (AAPL), Google Inc. (GOOG), Baidu Inc. (BIDU), Goldman Sachs Group Inc. (GS), etc. These heavyweights are leading things higher, but just as important, we are seeing the lower tier stocks join the fun. The advance decline line remains very bullish over the past several months, and that is showing no sign of changing. Even when volume isn't explosive, we're still seeing the majority of stocks move higher while on the selling days, the differential isn't nearly as strong. And as far as volume goes, please remember that volume is only important when you are dealing with major tests of resistance and support. Anything in between is not that meaningful.

See today's charts at Swing Trade Online: COMPQ (Nasdaq Daily), SPY (S&P 500 SPDRs), SPX (S&P 500 Daily), WTIC (Oil Continuous Contract), XLU (Utility Sector ETF).

Support remains critical at those 50-day exponential moving averages. As long as they hold on any selling the up trend remains solid. 2086 on the Nasdaq, 9752 on the Dow and 1052 on the S&P 500. I don't expect those levels to be broken any time soon. There's now a strong gap not too far underneath each major index to help keep the bears at bay. Again, those gaps do make a huge difference as buyers line up at those levels. The gap ups were gap up and run thus these gaps have major significance in favor of the bulls. With the MACD's starting to turn up on the daily charts from low levels and stochastics crossing bullish, getting too much sustained selling won't be easy at all.

I am getting a lot of emails regarding this market starting to seem like froth all over again. It does feel frothy on the surface of things, but if you look deeper there isn't much, if any at all, at this point. This is why I love to follow the AAII Survey to see how investors are feeling. It is a very reliable indicator. We are seeing a big ramp in bearish emotions. The reason why is simple.
We are basing out laterally for almost two months now and after a run up, when the music stops to catch its breath, it makes people feel like things are over with.

That it's. All gloom and doom from here, as most folks have encountered, two massive bear markets in under a decade. Lateral consolidations act as a catalyst to ramp up bearishness and that's healthy for the bullish case. Until I see things get ridiculous on the number of bulls to bears, the market is going to try and maintain a bullish slant. Don't let the talking heads and dooms day forecasters allow you to fall in to their trap. Enjoy the amount of bearishness out there as it is a safety net to some degree. Let the market talk. That's the only thing you should be listening to.

We continue to see great patterns setting up and remain in the two plays. More plays to come once those 60's actually do unwind further. You don't want to get too involved at overbought thus some exposure is appropriate. Too much is not although weakness can be bought for now.

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