Stock Market Bull Rages On....

Stock-Markets / Stock Markets 2013 Feb 03, 2013 - 03:21 PM GMT

I don't think anyone reading this letter tonight would argue that the bull market is raging along, overbought or not. Even the most bearish of traders has to realize, at this moment in time, the bulls are in full control of things. How can you argue with this type of price action? If you have, and you've been shorting, you are undoubtedly feeling the heat. Nothing good has been coming from shorting at overbought to this point. Of course, we will snap down for a correction at some point soon, but until now, shorting the overbought conditions have bought you nothing but heartache. Thinking you can short just because the market is overbought is a huge mistake.

Remember that overbought alone is not a sell signal, A market can stay overbought in good times, until there's something that comes along technically or fundamentally to give it a start to the down side. Things, such as unexpected bad news from overseas, or a group of consecutive bad economic reports right here at home. Sometimes it's simply from a negative divergence that forms on the short-term charts. Any can be the catalyst to the correction, but shorting or selling the market simply because we're overbought, may not be the most thing to do. Only when a primary indicator hits should one run from the long side of the market. Bottom line is today was another strong day after support held following the two-day down move. Bulls still fully in control, but there is a pullback coming soon so be aware of that. A pullback is healthy.

We try and learn why the market does what it does. There are places to look fundamentally that speak to us. You can see those fundamentals in a certain chart or two. If we look at iPath DJ-UBS Copper TR Sub-Idx ETN (JJC) or the Global X Copper Miners ETF (COPX), we can see it trying to break out. This tells us that the economy seems to be getting better, whether we want to believe it or not. The chart speaks volumes about the truth of things. When copper is breaking out it means the market sees things getting better as the year moves along, regardless of what any analyst may me saying to the contrary. Never argue with the market is what I've learned throughout the years.

We saw some of that good news today when we heard the reading for the ISM Manufacturing Report. It came in at 53 shoeing expansion. Nothing to scream about joyously, but it what a nice increase over the previous month's number. That's just what the market wants to see, and once that report came out, that's when the market shifted in to another gear and raced even higher. If copper is strong it tells the bears that maybe their thinking of how bad things are economically isn't an accurate depiction of the truth. The economic news is slowly but surely getting better for now. The charts will tell us when that story is over.

If you want to look at healthy markets from another perspective, you look overseas, in particular, you look at oversea financials. The leader of leaders. That would be in Germany and that stock would be Deutsche Bank AG (DB).

The chart is very strong and tells you that the market sees good things overseas as well, again whether you want to believe it or not. Structurally, the chart is sound as is the chart of Germany or the iShares MSCI Germany Index (EWG). Both the stock and the country are exploding to new market highs today. It's always best if you can have the leaders around the world confirming each other. In this case we do. Asia is acting better as well. Not much to be bearish about from these perspectives. With the S&P 500 well above 1475, or the breaking level that has carried us higher, the market remains in solid shape. Yes, we will get a strong pullback at some point soon, but for now, stay the course.

Have a great weekend!

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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