U.S. Jobs....Higher Stock Prices....Froth and Overbought...

By: Jack_Steiman

This morning we had to deal with the monthly Jobs Report. The market was nervous since the ADP Jobs Report on Wednesday came in well below expectations. Would we meet with the same disappointment? Not at all. The number came in Goldilocks again. Not too hot and not too cold. We also saw wages rise nicely. The result was another up day for the averages. With this up day we are now extremely overbought on all the short-term sixty minute-charts. That said, we were also extremely overbought on those same averages coming in to today's action, and that certainly didn't stop the market from moving higher. Overbought is staying that way for now.

It may not make sense, and to be honest, it doesn't, but you have to live with what the market gives, not what you think it should be giving. While we all wait for some type of selling episode to make buying simpler, the market is making sure it doesn't make anything easy for anyone. You have to hold your nose and buy or simply stay cash. However, you have to recognize the extreme risk involved, and that's why so many want to see a correction, or at least a good pullback first before entering new positions. Makes sense, but keeping some scratch in the game makes sense as well, and that's clearly what we've been doing with overall success. Play what you see and not what you think should be for now folks. It's hard, but stay the course until we get the reversal necessary to say the game is over for a while regarding the uptrend.

Froth is a word maybe too easily used in this game, but that's surely not the case at this moment in time. Coming in to this week we saw a bull-bear spread at 44.8% which is incredibly high and incredibly dangerous for the bulls. The market rose further this week, thus, it's likely that the percentage is nearer to 50% than 40%. This is bad news for the market, but as I've said over and over, you stick with the trend in place until you get the reversal necessary to change things to more bearish for the short-term. You don't ignore this type of reading. You respect it for what it is. Can it take weeks before we get a catalyst to knock this market down? Sure, but you need to realize that the market can fall hard now without a real catalyst. Just the weight of too many bulls can knock this market to its knees very quickly and without notice. No way to know when it will take place but it will respect this problem for what it represents and proceed accordingly. Make sure you understand the risk here.

Everywhere we look things look fine. Sector rotation continues, but do understand that the rally overall is pretty broad based. It's not just a sector or two carrying the day. It's mostly from every part of the market, and that's what makes things more bullish bigger picture when you remove the headache of froth and sentiment. This process has been ongoing since the first of the year, but only this past week, or so, have we seen the averages actually climb a bit above the flat line for the year. More and more sectors are participating at the same time now. More and more folks are afraid to be left behind, which is what happens near tops. This process can take quite a long time to complete, however, so you don't get bearish yet. For now you have to like the overall status of this market from a total participation perspective. Nothing bearish here.

Look folks, you play what you see. Keep your eyes bigger picture on Nasdaq 4204 to 4186, which is that important large gap that remains unfilled by the bears. The recent low being 4207 before we turned higher. If and when 4204 gets taken out that's the first red flag. When 4186 goes away on a closing basis then you real trouble, but for now, that's simply not the case, so your bias should remain on the long side of equities. Respect the headaches out there, but keep that long side bias until the bears can capture 4186 on what will likely be multiple gap downs that close on or near their lows.

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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