Stock Market Hanging Very Tough

Stock-Markets / Stock Markets 2012 Feb 08, 2012 - 06:54 PM GMT

You have to hand it to the bulls as they just refuse to give up the gains in this market. For now, anyway. You have to wonder how long they can hold things up this well into very overbought conditions on the daily index charts. The market tried a few times to sell things down, but it refused to cave in. The folks on the side lines that have missed a lot of this move are anxious to get in on any weakness, thus, the bears are having a rough time keeping things down. It'll happen at some point for the bears. It's impossible to time it, because the buy-the-dip mentality is still on.

One day we'll wake up and the futures will be down hard, and they won't come back, and neither will the market once the trading opens that particular day. To play for that moment in time doesn't make much sense. It doesn't mean you go haphazardly about things and buy too much, but not having any participation at all is tough in this environment. You want some exposure, but not 100% exposure. When things become more bullish, markets can stay more overbought. we saw that exact action today as the market tried to get below 70 on the RSI's on those key index daily charts, but it never materialized. The same holds true in bear markets. RSI's can stay at, or below, 30 for many weeks at a time, thus, this action is not something you never see. The momentum is strong, and therefore, we're hanging in at overbought. The market is now having trouble racing higher, but it certainly is in no rush to dive lower, for now. Good solid action for the bulls today as the bull trend is holding on without even a reasonable pullback, for now.

The sentiment issue is not a problem at this moment in time. It will take some time down the road to get this issue to become a real problem. However, that said, you can see the process is under way, with regards to getting more complacent. We're now at 23.4% more bulls to bears, which is a strong 4% rise in the spread over last week. It takes 30% to get me a little antsy, and really, it takes 35% for the number to be a problem for the bulls, so we're not there yet, but the process is unfolding in front of our eyes. Remember, when it was minus nearly 12%, and now we're plus 23%, or a 35%, change. It happens even when you think it can't. That's the game. You go from fear to complacency over time, and not too much time, if things start to go well enough for people. Fear is a tougher emotion, but now that the market is trending upward, it seems as if fear is not in our consciousness, for now. It'll take selling over an extended period of time to get fearful again, because, for now, the market is the buy-the-dips mentality stage. For now, it's no problem, but keep in mind that some, if we're lucky enough, will become a problem someday down the road.

Greece is getting closer and closer to a resolution that the people of that nation won't like, but is clearly necessary. The deal appears to be a good one for them, and the market's liking what it sees, for now. If the deal falls apart, the market will get hit very hard now that it seems things are better there. I don't think the deal will have any trouble wrapping it up the way it needs to, and if it does, the market can take that headache off its docket. That would be a welcome happening for everyone.

It's old, and boring, to say the least, and a real burden to this market. So it'll be a fun day for everyone once this deal gets completed. It may not help the market, immediately, based on how overbought it is, but it's strong news, and positive news, for the longer-term. The market will then have hope that all of the burdens of Europe will start to disappear as well. There's no way to know if that'll actually happen, but the market is starting to smell a happier ending than we thought possible not too long ago. If Europe's ills get taken care of, the market will want to move higher, for sure.

The market is, and has been, overbought on the major index daily charts for a while now. It will have a decent pullback at some point in time, but the higher we can drift, the better the chances will be that the market can hold the major breakout level, which is now 1315. This is where the long-term down trend now lives. It's also where the 20-day exponential moving average lives. This is a powerful double level of support. Big money supported the breakout, so it makes sense to believe that the same big money will want to defend the market, if we start heading back towards 1315 on the S&P 500. If we lose with force, that'll be a major red flag. 1292 would be next, but losing 1315 would be a bearish outcome for the market. 1370 is resistance. For now, we maintain a more bullish bias, but also in the back of our minds we understand a pullback will have to take place to unwind the overbought conditions.

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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