Quiet But Positive Day Below Resistance...Weekly's Bullish With Tails.....

By: Jack_Steiman

Market is overbought short-term but there are no sellers for now. The positive divergences on the MACD on the daily charts on the S&P 500, Dow, and Nasdaq are keeping a bid in the market. Even poor retail sales numbers this morning for May couldn't kill the market today. The futures fell 30 points on the report on the Nasdaq but after the gap down, the market shot straight back up. No selling at the end of the day even though the Dow was down around 70 points intra-day.

This is solid action for sure for the bulls, although again, we are overbought on the short-term charts. The fact that we're staying overbought for longer than we ever do oversold should come as no surprise as that's normal stock market action except in the most intense bear markets. Those are rare indeed. With the Nasdaq leading higher today that has to be considered more bullish than bearish near-term, and thus, we may just stay overbought on those short-term indicators and break out above 1105, the big number the bulls need to take out in order to gain back control of the markets for the near-term. Could happen Monday if we get the right news over the weekend.

That could happen if we get bad news over the weekend. The market will do what it wants. News won't stop it if that's the plan. Bottom line today was solid action considering we were up nearly 300 points yesterday.

The market has been range bound for quite some time now and that should be normal. We had a huge move lower and the bears would normally need time to consolidate that move lower. However, we have to consider all possibilities. With the range clearly defined between 1040 and 1105 we know that a break above 1105 is bullish and a break below 1040 is bearish. If we break above 1105 cleanly, then we have to respect that message. Keep in mind my favorite saying, markets go up far more often than they go down. so it shouldn't be a shock even to the most ardent bear that they may spit the bit again. That, too, is normal behavior.

For the moment we are still in the range, although, getting close to breaking out after today's excellent hold. Just respect the message. If you're a bear and we clear 1105, you better not be shorting unless you love pain. If you are a bull you better not be going long if we lose 1040. Right now the overall picture favors the bulls due to those compressed MACD's along with some of those positive divergences in place.

Look, in a perfect world we would have had all of the index charts showing positive divergences on their daily charts. We didn't get that, but we do have them on some key charts, such as the S&P 500, Dow, and Nasdaq. Those divergences came from very low levels on the MACD scale. That's the key. From very low levels on the chart and that makes downside action very tough for the near-term. Yes, there will be down days for sure, but you can't argue with those MACD divergences.

Many stocks are just turning up off the bottom of those compressed levels with positive divergences. That tells me that there are scores of stocks that need to go higher and thus the market isn't likely to fall for more than one day to a day and a half on any pullback. Just too many compressed positive divergences for any sustained selling. It is what it is. Can't argue with what you see and no one can argue those divergences from low levels.

Short-term charts are a bit overbought on stochastic's but not RSI?s. A pullback can come at any time, but the daily charts rule thus any selling will quite likely be bought up in rapid fashion. The divergences that exist could, but far from definitely, mean we've seen the ultimate bottom in this market. Again, because it's not across the board it's less certain.

If it were across the board I'd have a full, long portfolio out there. With 1105 the key to this market it's too early to go overboard on longs, but I would say that no to shorts is the best way for now. You'll have to be very nimble for sure if you do short. The market is not in the clear longer-term here. I just think that to short, maybe medium-term, will be better for the bulls than the bears.

Now for the most important part of this report. I have charts for you in the report this weekend. Then weekly charts. They have stochastic's at roughly 20. That level has often been an area markets rally from after a long move lower. Not always but quite often. In addition, and this is important, the 50- and 70-week EMA's often separate bull from bear markets. We breached below but found a way to recover and close above.

Look at those charts carefully please. Tails off those key moving averages and low stochastic's are a harbinger for higher prices overall. I didn't say explosion. I said higher prices overall. Not every day. So. I think we go higher overall for a while, but please don't go 100% long as the whipsaw can easily, as we all know, shake you out.

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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