The market gapped up this morning and became really overbought on those daily charts, but that didn't deter this market from grinding higher throughout the day, although some late selling took prices off their highs. RSI's are really getting up there, but the retail trader is holding things up as they usually do. The market seems to want to fool the masses and try higher in the short-term now that just about everyone says things will fall from overbought once the new year begins.

When everyone agrees on something it makes me nervous. I'd prefer if my thinking wasn't the same as the crowd. We will have to pay a price at some point, but today's action goes to show you why you never short an overbought market just because you know a pullback is coming along. You wait for the right reversal candle stick that tells you the selling is here for a little while to unwind things. Today we saw none of that, thus the trend remains the same. Up trend in place with high risk for a strong pullback in the near future, but without the ability to know when that will happen. Stay with the trend is always the way to go.

The financial chart, Direxion Daily Financial Bull 3X Shares (FAS), continues to show good action. It's getting overbought and could use a handle pullback to unwind things. But you can't argue with the set-up. This is one major reason you can't get bearish, even if you really want to from an emotional perspective. When the weakest of the weak for the past several years start to firm up on news that things are on the improve, you don't want to start getting too bearish on things overall. It's set-up in a way that even a 500-700 point pullback wouldn't hurt the set-up big picture.

The commodity world continues its out performance in to very overbought conditions, and thus, the danger is real for a strong pullback, but again, there is still no reversal stick suggesting it is upon us right here. Careful shorting these plays as they are the ones that are killing the shorts the most. There aren't many sectors looking that weak, but many are still very overbought, so again, caution is warranted. Bottom line is most sectors look good, especially the financial sector, which is a real change of character.

Let's focus on the bigger picture through 2011. There is risk. Always risk in this game. But things are setting up pretty well overall. The fed is pumping away and will continue to do so. We can spend days talking about whether that's appropriate, or not, but we only need to focus on what that may mean for the stock market. It tells me that things could marginally improve economically, and this should keep a bid of some kind in this market.

If the banks take off, as they're set-up to do so, then things can get rocking. However, those stocks are very hard to trust, so although the set-up is there, let's see it blast off this current inverse pattern to feel more secure. Earnings were set-up quite low by some very smart CEOs who knew to take the pain a few quarters ago to set-up things to be stronger down the road by beating lower projected figures. That should continue for the foreseeable future, thus, earnings will be good. This is the key to a market trending higher. Solid earnings with some decent economic reports along the way.

I think 2011 will be a good year, but as always, I play it day to day because what looks good today may look quite bad tomorrow. Predicting with a guarantee puts too much emotion in to the equation and prevents you from doing the right thing if that right thing is against your original belief system. Be open day to day to the message of the market and you'll do just fine at the end of the day.

The market has great support far below current price, thus, it should be able to handle any normal 5-7% pullback, and not lose its up trend already in place. 1200 on the S&P 500 is great longer-term support, and we are now quite a bit above. In time, selling will help set-up some wonderful plays that will be able to run a ways. Right now things are capped to some degree, and that's why no more than three plays at a time here. Go slow and easy with some long exposure. Weakness will be a welcome gift down the road.

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 constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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