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S&P 500 Joins The Nasdaq For Now...

Jack Steiman from SwingTradeOnline.com at 02/19/10


Today was a very interesting day from this perspective. Normally, when a market gets overbought on the short-term time frame charts, it sells off some almost immediately. If we were in a bear market or a strong down trending market, it probably wouldn't last but a moment. The selling would kick in basically immediately. We spent an entire day today at overbought. Unusual but bullish. At some point we'll need to sell that off some to unwind things but it was great action to see overbought stay overbought.

Keep in mind that the daily charts are not even close to overbought or mature, that's what took over today and in healthy markets, that's what takes place. Again, we'll sell some very soon because the rubber band will snap but it's bullish action to see the market behave this way in the face of very overbought short-term 60-minute time frame charts across all the major indexes.

We opened down a little bit even though overseas markets were higher overnight. We were just too overbought it seemed for higher prices but no real big swoosh down to begin the session. Early on, the bears tried a few times to take the market down, especially those leading technology stocks but the selling didn't last very long at all.
Slowly but surely the market steadied out and stayed slightly above the flat line for the first half of the day.

Then quietly, and out of nowhere, the market began to bid in the face of what should have been the opposite. Instead of overbought holding back the bulls, they charged in and took things higher. Nicely so at that with the market closing at their highs or just a hair off of them, depending on what index you look at. Solid action for sure. While selling can occur at any moment based on overbought 60-minute charts, the overall trend is now higher short-term.

As my title suggested, the S&P 500 joined the Nasdaq in clearing back over the 50-day exponential moving average although by no means is it cleanly through. The S&P 500 closed at 1106 meaning it's now nine points above or nearly 1%. Not bad but nothing like the Nasdaq which is now nearly 2% above its 50-day exponential moving average.
Good to see in that the Nasdaq must lead and now it is.

The appetite for higher beta or volatility is alive and that's always good to see. The S&P 500 has to get another 2-3% higher for the 50's to start looking like they're truly gone. However, it's good action by the bulls to be taking back those moving averages so quickly once the sentiment issue cleared itself up by flip flopping from extreme bullish behavior to one of far more fear. That'll do the job just about every time.

The financials still refuse to blast up but they are grinding their way higher and for now, that seems to be best it can do. If the financials would gap up and out, the market would follow with a huge move higher and then the moving averages would sufficiently clear causing the bears to start covering their short positions in earnest. The good news for today is they strengthened late and were an important catalyst for this market moving higher in to the close. One more blast up and they'll carry the bulls on their backs. Getting close.

We're in a buy weakness environment although the majority of good wedges that were at the bottom are a bit more mature now and will need some base building before they become buys again. Nothing wrong with some consolidation before another leg higher in those stocks. Some are getting overbought and should be avoided. Best to always buy good bases, not overbought, or stocks at the bottom of their wedges with good divergences on the oscillators. Dell Inc. (DELL) and First Solar (FSLR) are weak on their earnings tonight and may give the market a reason to have some weakness from overbought 60-minute charts, but again, if and when weakness occurs, welcome it for now. It offers some nice opportunities.

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