Stock Market Overbought? No One Cares...

Stock-Markets / Stock Markets 2010 Apr 15, 2010 - 02:02 AM GMT

Come on! You have to sit there shaking your head saying this can't be happening. When negative divergences exist it's bad enough. When you throw in the now 80 RSI on the daily charts along with 70+ on the weekly charts, it's just not logical for this market to have days such as it did today with the Nasdaq leading in a fashion a real healthy market should.

Technology leading. Everything else being dragged up because sellers just simply go away. Technology stocks have the best growth potential but they also have the highest number of shorts who expect these stocks to get smoked. They get forced to cover once they see they're not getting any satisfaction. More fuel. And on and on it goes. We have the bulls over the bears now by 32.2% and even that doesn't matter. Nothing matters at this moment in time.

Today saw no end to the upside, even after a nice reversal early in the morning that nearly took the S&P 500 and Dow in to the red. That selling was gobbled up immediately. No hesitation. Market closed on the highs led as I said by the Nasdaq on very solid internals. Not a thing anyone can say about today being nonsense. Solid across the board.

So how do you proceed with a market that has so many short term red flags. Remember, multiple short-term sell signals are in place. You stay with the trend such as we have and you make sure the plays you do get involved with are at very strong support levels with even more strong support not far below. You have to be meticulous with your plays. Be sure you're not buying overbought. Be sure you're not buying bad divergences. Be sure you're not playing too many higher beta plays meaning stocks that really move around a lot. Why?

Because when this market finally snaps and allows for a sell off, it will be very harsh in nature and you best be sure you are overly exposed. The pain will be awful. You'll quickly forget the past few months. So you continue cautiously long while keeping the risk as low as humanly possible. If you get super aggressive, you'll hate life the moment this does snap down. Never forget that it feels like things can't sell in markets such as this one. Then it does and you hate life. So for now, we'll stay in the game but in a fashion that is much less aggressive than the past few months.

The S&P 500 is in an inverse pattern that actually measures to around 1240. Earlier today I sent out a note that suggested it measured to 1225 but on second glance, it's more like 1240. Doesn't have to get there at all but that's the measurement. We could sell before that level, or at it, or never get there. Bottom line is the S&P 500 still has some room left before it runs in to a full inverse head and shoulders measurement. The higher we go the more careful you have to be just from that perspective let alone everything else I have spoken about tonight.

Bottom line folks is this. This bull continues to defy the odds. It is stunning to watch. We will play what we see and for now it says nothing but longs. We will get caught at some point so be prepared for that. With lower beta mostly the way now, it won't be terrible. Please don't get aggressive to the point of full exposure or to where your tolerance gets exceeded from a pain perspective when the selling kicks in. Don't play from greed. Play from appropriateness.

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.

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.

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