Bifurcated Stock Market, Still No Topping Action.....

By: Jack_Steiman

Sometimes you have to recognize that there's not much to add or say when doing this report. The reality is that things just aren't changing very much. The market is refusing at this time to throw a classic topping stick in our direction. We are so overbought with the potential for negative divergences on many time frames, thus, the market is truly at extreme risk for a very intense and sudden breakdown for a period of time. Only one problem. Again, there’s no topping stick and or massive gap down to set the top. It will come and probably not far out in to the distant future, but if you're a bear, you don't want to get aggressive too soon as that strategy has caused nothing but heartache for quite some time now.

If you're a bull, however, protection mode is not a bad thing to be doing meaning it would be best if you took things easy for a while and didn't open up too many new plays. The risk is high and why load up when risk is high. A nice powerful pullback to come soon will allow you to buy things much cheaper in time. When that happens, and we unwind all these overbought oscillators on multiple time frames, it will be easier to run in and nail some good longer-term plays.

For now, it’s best to be aware of how things truly are technically, and while they're not bad, they're far from safe and wonderful. If you find something that looks just too good to let go of on the long side, I could understand your taking a chance. But if you do choose to play, keep things very tight. Keep those stops at a smaller percentage than normal. Take gains faster or at least partial gains. Greed is never good when it comes to playing this game, but in the short-term, it's good to be even more aware of not getting greedy, if you get lucky enough to find some good gains.

So as the title says, bifurcated. This is becoming more common than I'd like to see as indexes are diverging from each other. The good news on it is at least the Nasdaq seems to be the strongest of the indexes when they do diverge. In other words, froth is still in control and since Apple Inc. (AAPL) has been on a tear, it has been leading the index higher, since it is the heaviest weighted stock in the index. If the Nasdaq were trailing, while the others were leading, it would be a real red flag. That said, it is not healthy if the trend continues.

Market indexes need to go up together. If not, at some point the fun runs out and the market starts its descent. This needs real watching in the days ahead since we're barely hanging above the 1700 breakout level. You should see a market run up hard and fast once a level is taken out. This has not occurred at all. We're spinning above the breakout level of 1700 and that needs to stop. The market needs another powerful up day to confirm the breakout is for real. Right now it is not for real. Breakout and churn is never good, and the longer it lasts the more likely it is the bears will become aggressive and take it away. The bulls need to get going and sooner than later.

The earnings season is, for all intents and purposes, over. The biggest and most important stock and leaders in all of the major indexes have done their dirty deed. They've let us know how the future looks, and overall things weren't half bad. Nothing wonderful, but since the economy was weak, expectations were low heading into this quarter. Most leaders didn't get taken out back and smoked, which is good to see. There were the usual list of big winners and big losers.

Overall, however, things were not so bad and, thus, the bears lost their most important catalyst to get the market moving down. Now they have to depend more on technical oscillators than real fundamental news. They'd prefer some real bad fundamental news to seize the day, but that's not there for them right now, and again, why the market seems to be holding up when it technically should not. So one day at a time here as we wait for the moment the market tops and begins a powerful pullback that should last weeks to a couple of months.

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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