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Jack Steiman from SwingTradeOnline.com at 12/31/09


Those 60-minute charts are unwinding but those daily and weekly charts have yet to begin that journey. The market will likely try to bounce around in our confirmed up trend, but it is undeniable that those daily oscillators are going to have to come down over time, likely a lot sooner than later. The 60-minute charts can give the markets a quick boost up but that’s likely going to be brief as the daily charts will then take over and limits any real upside. Stocks bouncing back up, such as Apple (AAPL), are putting in very weak moves on their individual 60-minute charts suggesting they will need to move lower in time.

The markets tried lower today based on those short-term time frame 60-minute charts, but as usual, the retail holiday crowd gobbled up shares at the first hint of downside action, allowing the averages to hold up well considering the look of the daily chart oscillators. Keeping in mind the up trend in place overall and you can't be shocked that this market is struggling for sustainable down side action.
However, moves to the up side are now going to be far more difficult and this needs to be considered when deciding if you should be partaking in risk. The 60-minute charts are a red flag to some degree. The daily's more so. Don't let small bounces interfere with appropriateness at this stage of the bull market.

See today's charts at SwingTradeOnline: COMPQ (Nasdaq Composite Daily), MID (S&P 400 Mid Cap Index), SPX (S&P 500 Large Cap Index), NYA (NYSE Composite Index), PowerShares DB US Dollar Index Bullish (UUP).

Let's remember that many folks have done decently well off the March lows and do not want to pay taxes on those gains for the year 2009. If they wait to sell even on the first day of 2010, they will not be forced to pay taxes on those gains for basically another year. Thus, expecting a lot of selling this week makes no sense, even if upside action is difficult. People have had some rough times and they will do whatever it takes to make sure they are paying as little out of pocket as humanly possible for now. Who can blame them, really? I wouldn't expect much selling, therefore, until the new year and even then, it'll probably be a grind lower, not a straight move down.

Let's focus for a moment on sentiment. This is becoming a really big problem for the bulls. The bearish percentage is at its lowest level in roughly 20-plus years.
Only 15% of folks are now bearish while 51% are bullish. The spread is at 36%, which isn't good, but worse still is the low readings on the bearish side. Not what you want to see if you're overly optimistic. This is going to need to unwind over time. There is no way around that reality. Markets can not sustain big upside action over time when readings get this positive. The markets needs more bearishness and that means it'll need to sell some to get people to be more fearful.

The daily and weekly charts are still showing very overbought oscillators, especially those stochastics, RSI and MACD levels. Understand that very overbought is really another way of saying the markets are healthy. You need a healthy market to get this overbought. However, that doesn't change the fact that the market will need to unwind those oscillators and thus the reason for extreme caution. Add in sentiment and that just makes getting overly aggressive on the long side a bad idea for now.

Shorting is not easy either because when you're in a confirmed up trend such as this market is, you don't want to try and call the moment of the very top because you can be waiting longer than you'd like for the selling to ensue. You need some type of candle stick that says the top is in for a while and we've yet to see it. Retail time will not allow for that thus we're waiting and watching for confirmation. You want a gap down that keeps going and says that the gap created will act as strong resistance on all attempts back up. A good volume gap would do the trick.
Be careful shorting too soon without evidence of a topping stick. The market needs to be played very lightly here and with extreme caution on both sides of the ledger.

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