Stock Market Bulls Steps Up Again.....

Stock-Markets / Stock Markets 2010 Mar 24, 2010 - 03:50 AM GMT

This has been one of those bull markets that constantly make you earn your winnings. It has forced us all to play in to the teeth of some very overbought conditions. If we had followed conventional overbought rules we would have missed out on quite a bit of nice plays. Normally, when RSI's hit 70 across the board on the daily charts, that's it for the short-term. That rule applies in almost all normal bull markets. Not this one.

That's what makes it so tough. 70 RSI and 90+ stochastics are usually lethal for the short-term with regards to any additional upside action. Again, even that combination hasn't been able to sustain any downside action. So when you're confronted with this situation there is only one way to play. You buy the best base set ups when they're in their handles and not overbought. These stocks will pull back some if the market sells but the more oversold they are the less they're likely to fall. As the market moves around over time, these bases are breaking out one by one in their own good time, not ours. They can frustrate as they move about, especially when they have a nice move lower just after you get in.

The key is hanging in there as long as the pattern in place hasn't broken down. The vast majority of these plays are working out over time. There really isn't any other way to play a market this overbought. Buy the best set ups and waits for the results to work out over time. You really don't want to be in cash too often because this market has told us that isn't the way. Of course, we'll all get caught at some point, but it'll be a small price to pay for having done so well throughout this bull run. There is no perfection in this game.

We started out slightly higher today and then spent a good deal of time giving back those gains and going red on the S&P 500 and Nasdaq for short periods of time. The bulls have been relentless since back testing the 1151 S&P 500 breakout a couple of days ago and thus as the day rolled on they took control once again with the market slowly but surely gaining a better bid to the up side. Higher and higher we went as we entered the last hour of trading. The bears basically stepped aside by covering their plays allowing the market to close on the highs. The Dow up slightly over 100 points. The Nasdaq nearly 20, and the S&P 500 up 8. Solid gains across the board, which naturally made this overbought market more so. Solid action everywhere you turn which is once again the trademark of this market. Health throughout.

The question being asked over and over now is whether this market is going back to the old highs. I don't think even close personally, but I can't say I know anything for sure to be totally honest because all I do is play the signal given at any moment in time, and I have no idea what that signal will be next week let alone months from now. None of you should be spending a single moment worried about the longer-term. Your focus should be on getting the moment right as much as humanly possible in this, the hardest game on earth.

Is it possible we'll get back to the old highs at 1576 S&P 500? Yes. It is just as likely, however, that the S&P 500 will see 800 before 1300. There is just no way to know for sure and again, don't use up any energy thinking about it. Never play with your emotions. Play the message of the market. It has become that simple otherwise you make the very complicated even more so.

So 1151 S&P 500 is the key to support for now and it's trying to put more distance away from it so that when a larger pullback does takes place, the market can become oversold enough to allow it to hold there. With the market back testing 1151 successfully, any future sell off should really hold there. Sure, a small breach is always possible but 1151 is strong support for now.

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.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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