Jack Steiman, On Bulls in Control, but Risk Rising Rapidly (SwingTradeOnline.com)
We're overbought, and a larger pullback is coming soon, but that doesn't mean we won't wiggle our way up a few more percent in this market before the bigger selling kicks in. It will kick in, folks. It's not if, but when.
The selling will be extremely healthy, and it's very necessary, but since we're still in the buy-all-pullbacks phase of this rally, the market still works its way up higher in the days, and weeks, ahead before it gets a bit nasty to the downside.
It's important that stocks go up some more before the larger pullback kicks in. The further up we can rally, hopefully to 1370 or a drop higher, the more likely it will be that the bulls can handle the selling once it gets down to backtest the 1320 level. The bulls want to be able to protect that key 1320 breakout level, or the long-term down trend line that they worked so hard to take out. If the market were to sell hard from here, it's quite likely we'd lose 1320. That would be a negative, technically, for the bulls. It took time to make the move, and the last thing you want to do is give it right back, especially since the breakout occurred with all the necessary ingredients in place, such as volume, advance decline line, etc. Because it took place this way, you'd also expect the big money that helped make the breakout come in and support the market if it gets back to the breakout area.
The bears tried hard to sell things off on Monday, but the bulls would have none of it.
Even though the RSI's are above 70 on the major index daily charts, there the bulls stood firm as the market tried hard to sell without success. The dips are still being bought as new money is defending for now. With the momentum indicators so overbought, the new money will soon be overwhelmed and the pullback will commence. Monday was a classic example of what takes place once you take out critical resistance, such as SPX 1320. The bulls get braver, and those who are kicking themselves for missing much of this rally want in. The bears also tend to give up faster than the bulls normally do, so they cover and buy back their short positions, and give new fuel to the rally. The S&P 500 barely sold off 1 point on Monday. Slightly deeper selling on the Nasdaq, but with RSI on the Nasdaq daily chart at 77, it should, and needs to, sell harder than any other index to unwind things.
A very quiet week for new economic reports is not a bad thing for this market. There have been a plethora of reports the past few weeks that have been mostly favorable.
This, in combination with solid earnings reports, overall, is what's allowing this market to work its way higher and stay overbought on the major index charts. The only report of any major significance this week will be the usual Thursday report on jobless claims.
The market would like to see a consistent trend take place with the number two weeks back putting a fly in the ointment as it suddenly surged higher. The trend seems to be in place to keep the market happy, but just when you think it's safe to think things are improving, the rug gets pulled out. So, we need to keep close tabs on how the jobless numbers keep getting reported. We have seen the most important economic report on manufacturing establish a good trend over the past many months. It has gone from the flat line at 50 for many months up to the 54 area now. Nothing to get overly excited about, but the trend is definitely on the positive side of things. That's all the market wants to see. Not how strong it is historically, but how strong it is relative to the recent past. Numbers are needed to indicate the worst is over, and for now they are showing just that.
The S&P 500 is at 1344. This is only 2 percent above the 1320 down trend line breakout level. Not enough. When you have 70-plus RSI's across the board on the daily index charts, 2 percent is not enough at all. This is why it's imperative for the market to try and sustain overbought conditions. Get the market 4-5 percent above, and then it's in business to defend 1320 when the heavier selling kicks in. 1320 is first up, and then 1307, if that gets broken. If that goes away, and it shouldn't, 1292 is next. 1350, and then 1370 is resistance. The bulls need to get this towards that 1370 number to feel, and be, safer technically. For now, the bulls are in control. But, please remember, that we are overbought, and thus a snap down could occur at any moment. So, be safe with new plays. Don't overdo it here. The risk is rising rapidly.
Mike Paulenoff, On Resilient Gold & Euro (MPTrader.com)
Both spot gold and the Euro/USD are following their technical scripts with a little help from Bernanke and the Greeks.
Spot gold attempted but failed to hurdle key near-term resistance at $1730 in overnight action today, then pivoted to the downside into a decline that pressed to the $1710 area. There it held and turned up right from the support line of the bullish channel off of the Dec 31 low at $1522.48. That support line cut across the price axis in the vicinity of $1705.
Since the earlier probe of support, spot gold has pivoted to the upside from $1709.94 to nearly $1740.00 in what looks like upside acceleration into a new up-leg within the larger bullish channel. That projects next towards a revisit of the February (channel) high at $1763.71.
Meanwhile, the Euro/USD has rocketed from 1.3110/15 to a new recovery high at 1.3260 on the way to my next optimal target zone of 1.3330/60.
Avi Gilburt, On Looking to Confirm a Top (ElliottWaveTrader.net)
Tuesday, February 7, is the next turn date that we have on our calendar. Initially, we had assumed that this would represent a low. However, I think it is becoming quite clear that it will most likely represent a high.
As you can see from our 3-minute chart, it does look like we just about completed a wave v ending diagonal. As we stated Monday in our trading room, the levels to watch for a confirmation of the top is breaking below the 1336es level, and then a confirmation with a break below the 1329es level.
As for downside targets, please review the 60-minute chart. The target I like most is actually the .500 retracement of the Wave 3, which is actually a very deep 4th wave retracement. The reason I like it so much at this time is because of the potential confluence it provides for a double top in the market.
Let me explain. Wave 1 and 5 often exhibit some form of Fibonacci relationship with each other. The most common is 1:1 relationship, and the second most common is the 1:.618 relationship. Wave 1 was approximately 123 points. Assuming we would see a 1:.618 relationship between waves 1 and 5, then wave 5 would be 76 points. If wave 4 were to bottom at the 1270es level, then it would project a top to wave 5 and the entire blue c-wave at 1356es, which would effectively take us right to the top of what we now classify as Primary wave 2.
Therefore, if this scenario does play out in this manner, then if the S&P 500 were to move over the 1356.48 level, it would invalidate the count of this being the yellow Intermediate wave 2, and we would probably have a much more complicated large a-b-c pattern that could be playing out, which would still target the 1100-1150 region by June, based upon our overall pattern.
But, again, this is simply conjecture at this time. The ultimate point I am making is that we need to see where this 4th wave will bottom within our next turn period of February 16-21. The deeper the pullback goes, the more likely we will maintain the larger Intermediate yellow wave 2 count.
Harry Boxer, On 4 Charts to Watch (TheTechTrader.com)
Dendreon Corp. (DNDN) had a breakaway gap in early January, then a strong move up, a rising flag, and then it popped, flagged, popped again, flagged again, and popped again on Monday, up 2.36 to 16.53, or 16 1/2%. Volume surged to 30 million shares. With the breakout here, it could move higher. Look for something in the high teens around the 18-20 range.
BroadVision, Inc. (BVSN) had a very strong surge, more than quadrupling from under 10 in just a couple weeks. The big pullback held right at support, where it bounced sharply, and continues to move sharply. It has gone from 20 to 40, literally, in just about five days, a very big move. On Monday, it jumped 5.31 to 39.45, or 15.6%, on a little over 1 million shares. Watch for Monday's low around 34 - 34 1/4 as being a potential exit point. It's a long way from the high, so you'll have to look at some intraday support on Tuesday.
Cobalt International Energy, Inc. (CIE) continues to amaze, and this stock has now moved from under 6 1/2 to Monday's high at 22.33, which is nearly quadrupling in about 3 1/2 months. It was up 1.35 to 22.19, or 6.48%, on 1.88 million shares on Monday. The momentum is strong, and has a 5th wave in place. Look for it to move up to the mid-20's before it falters.
Rackspace Hosting, Inc (RAX), a swing trade idea, broke through resistance, stalled for a day, reversed nicely off the 46.80 range, and on Monday, it was up 1.21 to 48.40, or 2 1/2%, on 2.4 million shares. This one could be on its way to higher levels, somewhere up around the 53-55 range.
Other stocks in our Charts for the Day are Smith Micro Software, Inc. (SMSI), Genco Shipping & Trading Ltd. (GNK), KV Pharmaceutical Co. (KV-A), Zoltek Companies Inc. (ZOLT), Netlist Inc. (NLST), Anika Theraputics (ANIK), Abiomed Inc. (ABMD), A123 Systems, Inc. (AONE), LDK Solar Co., Ltd. (LDK), Pandora Media, Inc. (P), SodaStream International Ltd. (SODA), VirnetX Holding Corp (VHC), Corinthian Colleges Inc. (COCO), Affymax, Inc. (AFFY).
