The market is overbought and looks like it really needs a pullback of some kind yet the bulls refused to give an inch today. The overbought is only on the 60 minute charts but they are at extremes and I know the extremes can stay that way but that's not normally the case. It may be different a little further up the ladder this time but sooner or later a pullback will have to take place. It doesn't have to be a big move lower but some unwinding of the oscillators will be necessary. We gapped up again and closed with a doji. This means we basically closed where we opened and after a strong move higher that too usually means a small pullback is likely in short order. We all know nothing is 100% but the odds say we should fall a bit before going decently higher again. Doji's represent that the sellers have caught up to the buyers and that's what today's candle sticks suggest. Stocks like Wells Fargo (WFC) and Bank of America (BAC) along with many other financial's had black candles meaning they closed lower than their opens and after a strong move up that too usually means some selling is appropriate. Can we do another 20 Sp points before all that kicks in? Yes, but you sure wouldn't normally play it that way. You'd expect some immediate selling to kick in here. A four day winning streak for the bulls and bulls are feeling good about that and they should. It has been a long time coming but until we take out 775 with force, the bulls shouldn't get too happy. Today was another day on the journey but the trend overall remains lower. Many times these rallies breach resistance and then fail so there's much to study and learn from here as we head higher. The internals are solid but you'd expect that thus although today, and for that matter, this week was good, it doesn't mean it's time to celebrate the beginning of a new bull market. Not even close.
We held the 20 day exponential moving average at 1396 today on the Nas but have still failed to take out the 50 day exponential moving average at 1460. We all know this will be necessary in terms of thinking the market has made a full change from bear to bull. Those 50's have been very elusive for the bulls and whenever it has cleared it has not lasted very long. We have come a long ways off the bottom just to get close thus it's still going to be very challenging for the bulls to get through and hold it. it would be best if things sold off a bit to allow the index to gather up some more sustainable fuel to get marching on through. The Sp has its 50's at 796 thus it too has a long ways to go just to get there. No real celebrating bulls until you blast through, retest and hold and then blast off again. Let's hope that's in our future but there's a lot of work between here and there and we may never get there so one day at a time and no getting ahead of ourselves please. It always looks sexy when things are great and it may work out that way but don't let the emotion of it all get you ahead of game. The game has a way of knocking that type of thinking back down.
Now for the pessimistic perspective. Remember, my job is to cover all sides of things. While this rally has been great, there is one very disturbing thing that won't stop gnawing at me. The put call readings this entire week are frightfully low. Is it possible that some of that is caused by hedging by the bears as they let this bear market rally run? Yes but it doesn't seem likely once it goes past the first day. The sentiment readings are extremely low. The type of readings one sees only in a raging bull market that soon after sees a huge pullback. We have had an incredibly high number of readings in the .60's all week long. This doesn't mean that things won't be fine and that this rally won't continue on towards 775. It's very possible it'll get there but that'll probably mean yet another day of those very low, super optimistic readings. As they pile up one after another it makes one wonder if a very nasty fall will follow. So yes, the market is behaving well as it try's to move up and hopefully through 775, but it's doing so with a huge red flag on its back. One we must pay attention to and one that should keep our wallets tied to the hip a little bit tighter.
The Vix also managed to hold major support at 40 today. With the big move up in the markets day after day the Vix has held where it's needed to. 40.44 is the 200 day simple moving average and this sma has been where it has bounced and held when it has needed to. Even the up market today couldn't bring it down and this too is a red flag that must be respected. The market has exploded higher but as it has done so, the descent has been less and less and this too is a red flag for the bulls. In addition, it is getting very oversold as is the UltraShort Financial ProShares ETF (SKF), or the inverse for the financial's. Stochastic's are averaging 11 between the Skf and Vix and the Rsi's are starting to get down there as well. Here's the other kicker, the Skf and Vix are violently oversold on their 60's as well and both are or would form positive divergences on any move lower from here. If we rally up early on Monday, I would hesitate greatly to be long anything if we hit the 775-780 range. It will be very dangerous to be long, even if it's just for the short term.
So where does this leave everything? It leaves things mixed. The Vix, the sentiment readings from the put call and the look of the Skf have me concerned about the Sp going far beyond 775-780. Price action is good. Internals are good. Volume trends are good. The Skf, Vix and put call are bad. very bad actually. Massive long term resistance is at 775. it can breach but if that move up to that level show terrible sentiment readings once again, I'd be more than cautious here. It tells me a hard move down would once again likely take place. Don't elt emotion over this rally allow you to get too bullish in my opinion. There are enough large red flags out there to keep even the most intense bull wary of the potential danger. Let's go real slow and study things as they move along Monday. I think a move to 775 is likely but I wouldn't chase any of it from here to there. We're only long Research in Motion (RIMM) now. We've had a great year and a great run overall. This is a time for safety, not super bullishness. Too many critical warning signs for my blood much beyond 775/780. Nice and easy here.
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