Gary Dean, www.MarketsPath.com, on Why There's "Way Too Much Optimism"
Gary DeanThe indexes gapped up on Monday with a mission to bring the S&P 500 into positive territory for 2009. The rally was led by none other than the financials, ahead of the stress test results. The talking heads are saying any bad news that comes from the stress test results is already built into the financials, as the Financial Select SPDR (XLF) trades at new rally highs today. I am trying to figure out how that is priced in already.
Our short term indicators are all stretched well into sell territory. The last few minutes of trading on Monday, the market makers were on a mission to close the indexes in the green for the year. But that last push took the all of the indexes right at some major resistance areas and within less than 1% from the 2nd level resistance pivots.
We pretty much have a broad based consensus that the SPX is heading to 1050 and many feel that 950 is the next target to take some profits off the table. That may be the place we get to before the 50% retracement hits the tape, but I am not 100% sure of that right now. Everybody has switched over to buy the dips so you don't miss the train leaving the station, after the SPX has risen some 36% without a single 38% retracement.
The percent of stocks above their 50-day moving averages is at its highest level in seven years.
The smart money in the OEX options pits are very aggressive buying puts as the dumb money are buying the calls in the equity pits. The insiders, who were buying during the Feb/March fallout, have been selling 8x more stock then they have purchased over the last few weeks. Everybody is eying the 200 DMA on the SPX that is currently at 961, as the SPX just ran into the falling wedge apex it broke through. Meaning it broke the trend line within the wedge and now the top and lower trend lines of the wedge are joined together, which is pretty much where we closed today.
Can we head higher? Yes we can, but I believe a test of the 880-870-860 level will come first. I will watch the technicals as we approach those pivots. I just don't have that warm and fuzzy feeling about the indexes, and feel the rug is going to be pulled out at any minute. There seems to be way too much optimism heading into the worst month of the year (seasonally) ahead of the "non event" bank stress test. But let's just concentrate on the short-term pivots for now.
Jack Steiman, www.SwingTradeOnline.com, on the Market's "Pause Signal"
Jack SteimanNow we get serious. This feels good. We were lucky enough to close out our last short on March 6th, just before the March 9th start of this bull run. We have done extremely well and made a lot of money. This too will end. The rally isn't forever. I do not think, however, that the end of this rally is upon us, but I do think the end is close in terms of the need of a strong pullback. One that won't feel very good if you stay in longer than you should on the buy side.
We have massive resistance at SP 918/920 or gap and then we have price resistance at 943 and finally at 951 or the 200 day exponential moving average. We're not getting through 951 without a large pullback. Now if we got to 951 there's still plenty of upside left, but we have a real headache at that 918 gap. The problem is that when we get there, and again we basically are, we are going to be very overbought on the daily charts with Rsi's at or above 70 along with stochastic's above 90. A lethal combination. Not when you want to be long the market. It is NOT A SELL SIGNAL. There are no negative divergences. That would be a sell signal. It is, however, a pause signal that should not be ignored. I don't like shorting when the market is on a buy signal, but I also like being cash short term when the oscillators scream to get out.
On any further up move Tuesday or thereabouts, I will be going to cash and not worry about missing the last few points or the fumes if you will. Playing those fumes can be costly. That type of greed makes no sense whatsoever. It is quite possible that once we sell from severely overbought we could go to new highs and I'll be buying heavily once I get the next get in signal. Short term, however, I may be cash. It's fine. We've made our cash. We caught the whole move. Patience will be key for some days or possibly even weeks. There's always a set-up or two along the way short and long in those types of selling episodes. I will wait until it's appropriate and then do more, but one step at a time here. I'll be looking to go cash on any further strength and again, we'll deal if we get out a bit too early. Who cares!!! Greed kills.
Mike Paulenoff, www.MPTrader.com, on Why the Obvious May Be Right
Mike Paulenoff Although Joe Granville is fond of saying, "If it is obvious, it is obviously wrong," the double bottom pattern that has materialized in the Q's (QQQQ) since last October is about as obvious as patterns go. And yet, with a minimum of "pain" incurred around the multi-month breakout plateau at 31.80-32.00, the Q's have continued to march to the upside as the price structure fulfills its optimal targets at 35.30 and then 37.80.
This pattern, as well as the inverted head and shoulders pattern in the SPX indices, have unfolded in textbook fashion despite their obviousness and the doubts that have emerged as a result. In my experience, when an obvious pattern does EXACTLY what it is supposed to, the end result is a parabolic thrust in the dominant trend direction (in this case UP), as late-comers and disbelievers finally throw in the towel as they fly into the market. Such a situation is at one and the same time an opportunity to participate, but one fraught with the added risk of getting in during the parabolic stage - which ultimately usually ends badly. For now, though, the bulls remain very much in directional control.
