The market has pulled back from very overbought conditions and has done so in a way that has allowed all the daily RSI's on the key index charts to unwind to oversold. While not always the case, when that does happen in an existing bull market the trend usually heads back to the up side. Not always as you can stay oversold, such as what happened in January, but that is rare.

The normal behavior is to hit oversold on stochastic's, and then start the journey back up again. Wash, rinse and repeat. Only if the market has other intentions can we expect the stochastic's to stay oversold, but we're not seeing anything on the charts such as we did in January. The moving averages are crossed properly. They weren't back in January. The MACD was more impulsive on the way up on this move. It wasn't that way heading in to January. There were lots of gap downs in January of a larger nature.

The gaps here are smaller with smaller candle sticks for the day. While the bears may want to use the comparison to January to convince themselves things are about to get real bad, there really isn't anything at all off the top now that resembles what took place in January. Of course, things can change quickly, but, for now, all we can go by is what's physically on the charts, and when we look closely there really isn't anything from this down trend of the top that compares favorably for the bears with what took place in January. While we seemingly go nowhere fast, I have to say that things are still favorable for the bulls short term. Not wonderful, but definitely favorable. The bears blew their chance on Friday when we tested slightly below the key, 50-day exponential moving average now at 2044. A 2039, but a 2057 finish. The bulls remain more in control than not, but it's not going to be easy. Again, slight edge to the bulls as usual.

For now, the market is dancing. A side ways dance between two key moving averages. The twenty day is at 2067, while the 50-day is at 2044. Sometimes a market will take a rest with neither side able to do much. A pause that allows for further unwinding of those oscillators we follow so closely. That's good news if you're a bull, since the lower they go the more potential energy gathers for the move higher in time. As long as the bulls can hold above 2044 they have a real shot at blasting this thing out over time. They must first clear the 20's at 2067 on a closing basis, and, of course, with some force would be best. If, for some reason, we close below 2044 with some force then we have something to look at from the bearish point of view. The bears would be in control. We're not used to that, so only if we close below 2044 should the bulls be worried about anything. A dance the bulls should like seems to be occurring, but don't lose track of all the bad news that's out there from those monthly negative divergences to a high S&P 500 P/E near 24 to poor economic news.

Add earnings to the mix and there's enough bad news without low rates in place to kill this market. Low rates are still winning the day, but never lose track of what can derail this market at any time. The bears have a lot going for them if not for the fed, so keep things lighter than you would probably like to. Safety never hurt.

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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