Stock Market Rally Continues...

Stock-Markets / Stock Markets 2010 Jul 27, 2010 - 03:11 AM GMT

It also is putting distance away from 1099 down to 1092, which is very good news for the bulls. They certainly needed some breathing space and they got it for sure as the market churned near this 1100 area today, but eventually, and made sure the bears knew that it would have nothing to do with visiting sub-1100 again. The bears started to cover as the morning went on, and thus it was a day for the bulls. It's been a long time since the market got overbought on the short-term charts, but now we have those overbought conditions, which is a sign of health.

Remember that it's a bullish event to get overbought. Overbought is NOT a sell signal. Negative divergences with overbought is, but we have none of that here. The daily chart oscillators are in very solid shape. It would take a long time of back and forth action before we'd see a negative divergence form on those daily charts. With no bad divergences in place, the market was able to make the important move today further away from 1099 down to 1092, and the fact that we closed on the highs is particularly good news for the bulls and bad news for the bears. Today was exactly what the bulls had been hoping for, and thus, it's a knockout day for them over the bears.

The daily RSI's are now over 50 on the daily charts, and this is a necessary change of character for bullish runs. If you study all bearish markets, RSI 50 is about as high as any daily index chart, or even stock chart, will get. There's rejection from the 50 RSI area, but not this time. We rocked above and stayed above, and this is really good action for the bulls. The fact that we're over 50 on the RSI's, and add in the fact that the MACD's are showing a strong impulsion higher, is really good action from a bullish perspective. If you had the RSI's making the move, but the MACD's were not confirming, it wouldn't be very positive for the bigger picture. Fortunately for the bulls, we are getting that magical combination, and thus, things look good for the near-term. Always pullbacks, as we know by now, from short-term overbought, but the trend is changing, and that's a positive for this market for sure.

The other positive that's taking place is the change in the volume trends. Not only are stocks overall moving higher with good volume, but individual breakouts are showing the necessary 205 or more above volume that is necessary to confirm such a move. If stocks break higher out of bases, or any bullish pattern, but do so without confirming volume, you must never trust the move. This is definitely not the case at the moment. Stocks are breaking higher on some really powerful volume, and thus, are confirming price. In addition, the market is showing a strong advance/decline line on the important up days, yet, are showing no more than slightly red internals on the down days. It's showing accumulation in stocks rather than distribution. The internals are overall painting a brighter picture for the bulls these days.

Sentiment is the biggest factor over the past many weeks that have held the market up. With bad economic reports coming in almost daily and with poor earnings coming in at the beginning of the earnings season, it is without question the excellent readings from the bull-bear ratio that has held this market up. When the better earnings started to come in, this gave the market the impetus to move higher out of the recent lower range that had been established. Sentiment, along with good earnings, makes for a market that will want to continue to trend higher short-term until things get more frothy, or until earnings start to erode away.

Staying long for now.

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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