Overbought..Market Doesn't Care....Fed Protection Still In Play.....
It's exciting to talk about a powerful pullback these days. I can understand it as we are overbought, at least almost so now, and we are getting a bit complacent, although not too much so. The market has stalled, and it feels like it should be starting a strong down trend, except it refuses to cooperate. People are buying up every pullback that comes its way. Stocks like Apple Inc. (AAPL) threaten to break below gap support on a strong down day at 685.00. It goes below a few times intraday only to recover before the day is over. And so it goes, day after day, and even though there are many reasons for at least a decent pullback, it just hasn't yet materialized. You can't play as if it has to happen.
You can play cautiously meaning not getting overly exposed in long plays, but it does seem as if some exposure is appropriate, if not necessary. It may mean you're under water by a few dollars on some plays, but being 100% cash is probably not the very best way to approach the game right now. Of course, all this said, it does not guarantee that we won't get a decent correction back down to S&P 500 1440, or a drop lower, but you have to respect what seems to be in play for now. Price action talks, and my guess, it's simply fund managers chasing performance, while traders have been trained to buy all dips. Don't be too aggressive, and I wouldn't short because of that trend in place, but being in some longs makes sense. At least for now. We'd have to lose 1420 on the S&P 500 for things to get a bit out of hand for the bulls.
The game of stock market rotation continues along its merry way as we watch on a daily basis the big money switch their areas of affection. They shun some sectors for a while, and when it gets oversold and looks ready to break down, such as the transports just did, they step up and save the sector from breaking down badly. At the same time, others that were getting love, but got overbought, are then sold. This keeps the market from breaking out, but also keeps the market from breaking down, while some of the daily oscillators unwind over time. This is an old trick that has worked wonderfully through the years in bull markets. Always finding a way to keep things from getting uglier technically than they should, while things are trending higher. It allows the trend to stall, but doesn't allow the trend to change over. For now, that game is in full effect, and, yes, it can stop on a dime if big money wants it to, but you stick with what you see, until you stop seeing it.
Maybe the most interesting aspect of this market is the look of the financial stocks. They are overbought, but the patterns in place look far more favorable than not, and this is critical to the longer-term health of the bull market. Financials were the stocks that brought this whole market down years ago. They couldn't get a break for years. No bid day after day. When things turned they led up nicely. The market needs this area to continue to do well in order for it to continue on its bullish ways in the future. The way they look now does bode well for future upside, even if they decide to pull back some from overbought.
Oscillators are fine and confirming price, which is essential for a healthy stock or sector. If the oscillators don't confirm, you are in trouble potentially, but that is not occurring here, thus, I can only say they are bullish in nature for the bigger picture. Maybe these stocks are telling us the Fed protection in place will be there for a long time to come. A lot longer than anyone suspects at this moment in time.
Bottom line is you look at support and the S&P 500 has a plethora of support between 1440 and 1420, which comes from horizontal gap and moving average support. It will be very tough for the bears to break this market through 1420 on the S&P 500, but anything is always possible if the right news should happen to hit. We can sell at any time, but maybe knowing how tough it will be to lose 1440 down to 1420 has the bears holding back some.
For now, you should continue to hold a mild bullish bias, even at overbought.