Stock Market Drifts Along....

By: Jack_Steiman

Retail is allowing for the market to hang in there, but we're still facing overbought conditions along with bad sentiment issues, which is capping the upside for now. The financials are doing well. Goldman Sachs (GS), American International Group, Inc. (AIG), had significant gains today, while Bank of America Corporation (BAC), Wells Fargo & Company (WFC), Citigroup, Inc. (C), JPMorgan Chase & Co. (JPM) had fractional gains, but all did well. That's one of the few sectors holding us up here, but nothing is exactly getting crushed either. Just drifting around more than anything else, which is what happens when upside is minimal, yet the bigger picture internals are still bullish in nature. That's what is really frustrating the bears.

The bears feel in their hearts that the combination of fundamentals and sentiment should be rocking this market lower, but it's just not happening for them at this moment in time. Hard to argue with their thought processes, but the catalyst still isn't in place for this market to give up the bullish performance we have been seeing overall for many months. Maybe it'll take the bigger money to come back in early 2011, or maybe that's too easy. Maybe it'll simply take deeper extremes at overbought and sentiment to get the market to sell-off appreciably. Don't guess, and be careful getting too bearish too fast just because it seems we should sell down about now. Let the market print at least one candle stick that suggests some type of top is finally in short-term. For now, we continue to have low volume tiny sticks in a grinding fashion.

China gave a small surprise last night, although, many are calling it a huge surprise. They raised interest rates in order to calm down massive inflationary problems creeping in way too fast. There really is nothing to it. They gave the world a warning a week or so ago when they raised Libor Rates, or rates banks charge each other. This caused a gap down in our markets, but as usual, this wasn't enough of a catalyst to keep this market down. It rallied back as this retail week usually allows, but it tells you how different our situation is here versus what's going on in China. They are dealing with too much inflation, and we're dealing with too much of a threat of deflation.

We have our own inflation no one talks about much, but our biggest concern is the deflationary issues that come with a poor jobs environment. Our Government is not getting the job done for now with regards to job creation, and this is why we're getting tax breaks and Qe2. Print and pray. That's our Government at work. Different worlds across the ocean. Neither one is great. China will likely be forced to raise again in the not too distant future.

The froth stocks continue, overall, to struggle. This is a change of trend that most should be welcoming, not being disappointed by. They need to unwind their very overbought oscillators. If the market won't sell-off too hard while these stocks do, it says we have rotation to other stocks and other sectors. That's the characteristics of a bull market. Even when the best of the best sell, the market doesn't, and this should be a huge heads-up for those who want too bearish just because it seems to make sense.

Markets are not rational folks. Never have been and never will be. Think about the average P/E of a stock out there. In the real world they are basically all over-valued. In the gambling hall, called Wall Street, many consider this market grossly under-valued. That's what the market is trading like. A market that is under-valued. Don't try to make sense of it all. It doesn't make any sense. You simply trade the way the market action tells you to. For now, the super froth is unwinding some and the market is hanging tough. That's all you need to know.

Timing the moment this market gets smoked is tough, but we look for support levels to guide us as to where we can see some relief once the pullback commences. S&P 500 1213 down to 1200 is nice support, while 2590 is excellent on the Nasdaq. For now, we're well above both, so there's room for selling, while not losing the bigger picture up-trend in place. When we sell, I think it'll provide a great buying opportunity, but that's somewhere down the road. In the mean time, we play this lightly and day to day. You should do the same to be safe.

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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