Jack's Wrap - Grinding Action At Overbought....

We finally saw the market pull back some late today as those high RSI readings kicked in. It wasn't the type of selling that says the market is doomed from here because that's not likely the case at all. When markets get overbought they need to unwind so you have to look at the selling that takes place more as an opportunity rather than a -- it's all over for the market -- type of situation. Selling is never fun if you have a long bias and it doesn't take very much selling to kick fear in pretty hard. Again, greed is easy. Fear is a tough son of a gun. With the late day selling we saw some of the 60-minute charts do quite a bit of unwinding although by no means should that selling be totally over. We can try to grind higher again but upside will be very tough indeed for the very short-term.

Many stocks have super strong support not too far below as they have used strong gap ups in their patterns to drive higher in the past week or so. When these stocks get back down near their strong gap ups, they will have unwound much of those 60-minute charts to where these stocks will be buys again. it requires some patience, but it shouldn't take very long to get moving on that front. When stocks are in more of a bullish pattern, the way the buyers protect the moves higher is to gap them up once or twice within a short time frame and have them run higher off those gaps. This makes those gaps powerful support which I don't think the bears will be able to take away. There are boat loads of those types of set ups here so a little more patience will pave the way for some new plays that should do very well. Only if those strong gaps get taken back by the bears are any of these stocks in trouble. Some selling would be healthy and it should be looked upon that way when they do sell off. Opportunity.

Because we didn't get through 1151 S&P 500, the laggard of this market, the market has still not confirmed a bull market. The Nasdaq, small caps and mid caps, among others, have broken through their most recent highs but the Dow and especially the S&P 500 have not. It's important that the S&P 500 join that party to confirm that the entire market is in a bullish trend. That would put the bears in a tough spot and force them to cover their shorts which would add fuel to the fire. I do believe that we will take out S&P 500 1151 with force in time but only when that happens will i feel secure in what type of market we're in. It's been great and a fun ride but it's not officially solid for the bulls until S&P 500 1151 is in the rear view mirror.

There is lots of strong support for the S&P 500 not too far from today's closing price at 1140. There are two levels of gap support. 1123 and 1117 and just below that we have strong support at the 20-day exponential moving average at 1113. Three levels within 1% will make the job for the bears very difficult for sure. We may not go that low but the fact that these levels are close together will make the bears nervous and know that their job will not be easy. This is only 2% away thus the selling should be contained within that zone.

it’s been a great run for some weeks. It won't be easy now. The market will need some time so please understand that. Relax and let things come to us. There are times when you can't have a lot of winners as the market needs to rest and unwind. Things will set up yet again thus show the right amount of patience and things should pay off soon enough.

Peace,

Jack

The PowerShares QQQ (QQQQ) are hitting the RSI 70 Mark as January high areas are being tested.