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Stock Market Churning Near Target Measurment...

Stock-Markets / Stock Markets 2010 Apr 27, 2010 - 01:58 AM GMT

By: Jack_Steiman

Stock-Markets

One thing about those inverse head and shoulder patterns that have taken months to form is that they often make their exact measurements or at least get within one percent of that measurement over time. We have the Nasdaq with a head at 2100 and shoulders at 2325. This measures 225 points or 2550. Today's high was 2335 and that's less than one percent away from full measurement. Not bad at all. We may still get to 2350, but we came very close and that may be close enough. The problem from here being we are so darn violently overbought on those daily charts, not to mention being overbought on the weekly charts as well.


We have negative divergences on the RSI's and other oscillators and we have too many bulls to bears in terms of sentiment. So we're close to measurement and we have all these red flags in place. However, on taking a moment to look at the bigger picture, we are in one intense bull market, which in many ways, trumps all the red flags to some degree as price always rules over anything. The fact that we're in such an intense bull market says you want some exposure, even if it's small exposure, when there are other red flags abounding. Those red flags, however, keeps me from getting too aggressive with things. Now it is true that we have gone up in the face of many of these red flags over the past several months, but never this intense in terms of how overbought, etc.

Also, the sentiment figures are just getting to extremes again. It's not as simple now as just throwing caution to the wind and buying haphazardly. It won't work as easily as it has before. There are still things working as we know but nothing will be easy as before. You can't fight the tape as I love to say but it doesn't mean you can't raise the caution flag somewhat and know when to rein it in a bit. I think that time is upon us in a big way, even if we grind higher to that full 2350 measurement.


We started out flat today, which is has been more of a common occurrence these days. Most days the market starts to grind upward as the day moves along but that wasn't quit the case today as the Nasdaq under performed throughout. The Dow or the least important of the major index charts, led while the most important, the Nasdaq, lagged as many stocks in technology took hits such as Google (GOOG). The S&P 500 lagged as financial['s were hit on news the Government was selling shares of Citigroup (C), a recent S&P 500 leader.

Also, Goldman Sachs Group (GS) continues to get hammered on their SEC woes. Tomorrow they get to tell the Government their side of the fraud story they're accused of being involved in. The market decided to sell the news first and listen to their story later. Commodity stocks are leading although they reversed late today. We closed well off the highs and with the Nasdaq and SPX in the red. Not great but nothing really bad either. We have yet to see a gap down that sticks and runs and said the likelihood of a short-term top is in place. Until that time arrives, we need to have some scratch in the game.

Everywhere you look you see index by index in the need of some intense selling to unwind some very overbought oscillators. The retail investor who has missed a boat load of this bull market is now desperate to get in and this is putting a floor underneath all selling attempts by the bears. At some point this will stop and or the big money will unload and overwhelm the retail player. We're seeing that in some stocks as they break down. Both GS and GOOG are breaking down below support today. GS losing key wedge support but only by $1 thus it's not officially truly broken although it did close below $153.00 base support. If it doesn't run up soon, 145 is next and you don't want to be long GS if it ever loses $145. $115 is possible if that takes place.

So we are seeing the first important stock breaks, but they have yet to kill the overall market, and that is impressive as there are new leaders and winners emerging everywhere. Stocks such as F5 Networks, Inc. (FFIV), Cree Inc. (CREE), Eaton Corporation (ETN), Cummins Inc. (CMI) and many others. Great to see that the market no longer truly needs GS or GOOG be able to hold up on its own. Good for the longer-term prospects.

So here we are. A market that never seems to fall but is full with red flags abounding. There are times to be very aggressive and we have been that for sure. There are times, even when the market looks good, to pull it in some and I believe that time is now. 2550 would be full measurement on the Nasdaq, but there's no guarantee we get there before a more significant selling period takes over. Either way you shouldn't be getting overly involved here. Risk is higher now than it has been for quite some time so please move about slowly and carefully.

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.

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