Stock Market Fed....Overbought....Froth.......Still Heading Higher....

Stock-Markets / Stock Markets 2013 Dec 21, 2013 - 11:29 AM GMT

An interesting week to be sure. Wednesday when he tapered just enough to start the ball rolling, but not so much that folks are fearful of the entire liquidity pool being drained out too fast. He also let the world know that zero rates are with us for years to come. That was really the magic that sent the market flying higher throughout the afternoon on Wednesday after his announcement. After a pause Thursday, his magical wand got those buyers back in the game on Friday with the S&P 500 making a nice breakout over 1813.

Not much to add except that the bulls have made all the right moves to get this market on breakout just about everywhere. The bears have to feel like they have no chance here since no matter what is going on from overbought to a ridiculous bull-bear spread they just can't get any momentum to the down side, especially when they know they have to remove those key 50-day exponential moving averages. They came oh so close, but they did not get the job completed. They've failed for now, and that's what they carry with them in to this weekend. You can understand their disappointment as everything was aligned for them, but it just didn't work out for them. Yet! A solid week for the bulls.

I mean, come on, they're so ridiculously overbought on so many time frames it pains to have anything going on in this market to the long side. Historically the market should be getting annihilated. You have to have a strong will to be long in this market, but if you're not in you feel you're going to miss too much. The overbought levels on many stocks and indexes are at extremes rarely seen. Sixty-minute short-term charts are constantly seeing readings well in to the 70's, and sometimes the 80's, for brief periods of time. Many daily charts for individual stocks are over 80 and showing no inclination to settle down, although they'll have to at some point soon.

The real point being things are more than unusual technically here. Traditional oscillator readings are just not working. Can you say froth? You bet you can. All sectors are joining in the ridiculously overbought party from time to time unless you're dealing with SPDR Gold Shares (GLD) and ProShares UltraShort Silver (ZSL), etc. Where the madness stops no one knows, but just knows things are absurdly overbought in many cases. The Nasdaq monthly at 80 RSI. Monthly! That's simply unheard of. It also means that at any time things can crash down hard in an instant, but you stay with the trend until proven otherwise meaning bigger picture the removal of the daily 50-day exponential moving averages. For now, those oscillators are defying technical logic. Won't last forever.

Speaking of the bull-bear spread, the readings coming in to this week were 43.9%. It stayed the same as the prior week, even though the market was down four of the five days in that week. With the big move up this week, along with breakouts across the board, it is quite likely we're over 44.1%, which was the highest reading for the past twenty-five years. The number could be 45-46% or even higher. Are there any bears left at all? Makes you wonder. With this knowledge at hand just recognize a quick 5% or quite a bit more can come off the top. The selling can start out of nowhere without any notice whatsoever.

It's scary and thus you should not get too complacent and let your guard down. You'll likely regret it if you do. For now, we stay long some exposure, but know that there is extreme risk still out there.

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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