The market is once again overbought on the majority of daily index charts. When this occurs the candlesticks on the way up seemingly get smaller and smaller as it becomes a bit harder to find buyers that give the market huge up days. When markets aren't overbought in a bull market there’s one large candlestick after another. Now, due to overbought, those sticks are getting smaller and smaller as big money refuses to come in and buy for the short-term. They are waiting for retail to stop buying, thus, allowing the market to unwind those overbought oscillators. We also will get further insight as to why the market is printing smaller and smaller candles when we get those sentiment numbers on Wednesday morning.

My gut says we're right at that 36.4% level again. Within 1-2% away at the most. This all means that the risk is higher for new set ups, even though there are plenty of decent looking set-ups out there. New long plays can work right now but again, the risk is clearly a lot higher than it was even just a few weeks ago. Overbought alone is not a sell signal by any means as we can stay overbought for an extended period of time. However, when you add in those sentiment numbers you're not likely to stay overbought for quite so long. We shall see. Nothing is bearish, but red flags for the short-term do exist, so please be aware of that. Slow and easy here.

Earnings are rocking in every single day both pre-market and post-market. Some are very strong. Some are quite weak. But overall the reports are fairly good. Some stocks do take strong hits, but the majority of stocks are holding up quite well with some big winners along the way. Netflix Inc. (NFLX) stunk this evening, but Texas Instruments Inc. (TXN) was quite good. Canadian National Railway Company (CNI) was fine. Not great but not bad. The bears are going to need the majority of strong earners to disappoint in order to take this market down hard.

The only thing out there to take this market down hard is what I spoke about before, which is overbought/sentiment. That combination is not, however, able to kill the market big picture. The combination can lead to a very powerful selling episode to unwind. But bigger picture, the bears will need the Fed to disappear and for the earnings reports to start missing badly. If Mr. Bernanke is talking up liquidity for the long-term, which is taking place as we know, then the bears need the earnings reports to really come in poorly. We're still not seeing that. Apple Inc. (AAPL) tomorrow evening is the next potential catalyst for the bears. If AAPL does not falter, we could run again, especially on the Nasdaq.

There’s not much to add in this continuing bull market, but we need to pay very close attention to Wednesday's sentiment figures. It's so important not to ignore these numbers as markets can fall very hard very quickly if things get out of hand in terms of froth. It never feels like the market can fall when it grinds higher for the most part. It also feels like it can never go higher when things are constantly grinding lower. Right now is when it's very dangerous for the average trader. Emotion says get longer and longer stocks. Again, be careful here with those numbers known to all of us on Wednesday.

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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