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Remember that it's a bullish event to get overbought. Overbought is NOT a sell signal. Negative divergences with overbought is, but we have none of that here. The daily chart oscillators are in very solid shape. It would take a long time of back and forth action before we'd see a negative divergence form on those daily charts. With no bad divergences in place, the market was able to make the important move Monday further away from 1099 down to 1092, and the fact that we closed on the highs is particularly good news for the bulls and bad news for the bears. The daily RSI's are now over 50 on the daily charts, and this is a necessary change of character for bullish runs. If you study all bearish markets, RSI 50 is about as high as any daily index chart, or even stock chart, will get. There's rejection from the 50 RSI area, but not this time. We rocked above and stayed above, and this is really good action for the bulls. Add in the fact that the MACD's are showing a strong impulsion higher, and this is really good action from a bullish perspective. If you had the RSI's making the move, but the MACD's were not confirming, it wouldn't be very positive for the bigger picture. Fortunately for the bulls, we are getting that magical combination, and thus things look good for the near-term.
The other positive is the change in the volume trends. Not only are stocks overall moving higher with good volume, but individual breakouts are showing the necessary 205 or more above volume that is necessary to confirm such a move. If stocks break higher out of bases, or any bullish pattern, but do so without confirming volume, you must never trust the move. This is definitely not the case at the moment. Stocks are breaking higher on some really powerful volume, and thus are confirming price. In addition, the market is showing a strong advance/decline line on the important up days, yet are showing no more than slightly red internals on the down days. It's showing accumulation in stocks rather than distribution.
Sentiment is the biggest factor over the past many weeks that have held the market up. With bad economic reports coming in almost daily and with poor earnings coming in at the beginning of the earnings season, it is without question the excellent readings from the bull-bear ratio that has held this market up. When the better earnings started to come in, this gave the market the impetus to move higher out of the recent lower range that had been established. Sentiment, along with good earnings, makes for a market that will want to continue to trend higher short-term until things get more frothy, or until earnings start to erode away.
Jack Steiman is author of SwingTradeOnline, a journal of his market analysis and stock trading alerts. Jack had 132 Winning Trades Out of 206 in 2009 -- and is 53 for 88 in winning trades so far in 2010! Sign up for a Free 21-Day Trial!
