Market was weak as anticipated and now another ST oversold signal.

From last post there was a short term oversold buy signal and I cautioned that this time due to weakness in the stock market in general compared to the indexes (what is called negative divergence) I anticipated further weakness to the downside whether or not the stock market rallied. Right now most of the major indexes along with stock market gave back all and more of the brief rally that occurred last week. Only the SP500 and the Dow had held up better. Which now leads us to another short term oversold signal and again I do not anticipate much more than a week or so of upside. But looking at the medium term signals they are now getting close to between 'neutral' and 'buy'. The stock market could rally off this medium term signal or could continue to pause and struggle for a few weeks to reach a lower level to generate a medium term oversold buy signal. For now continue to use caution or just stay out for the time being.

At short term oversold but will the market bounce again this time?

From the last post there was a short term sell signal but looking at the major indexes of the Dow, SP500, Nasdaq, and Russell 2000 since there seems to be more of a pause then a correction. Only the Russell 2000 started to suffered a sell off this week. While the major indexes had looked calmed, individual stocks have underperformed the stocks in the indexes. This is what technicians call negative divergence where the underlying stock market is weaker than the major indexes. From Wednesday's correction, a short term buy signal came close to being activated but backed off a bit from today's, Thursday light rally recovery. The last two times where a short term buy signal was activated or close to being activated were at the last week of December 2012 and in late February 2013. The stock market rallied off nicely after those two time periods. So will the 3rd time be a charm again? Due to a lot of negative divergences that have accumulated in the past month I would be caution that this week's weakness could lead to more downside for the short term despite an oversold signal being given off on Wednesday (or trade the bounce rally as quick short term plays and with minimum amount of capital.) From the chart illustrated I would look for buying support at the SP500 1530 area.

Another breakout rally

Toward the end of February most of the major indexes moved down to touch or get close to their 50 day moving averages as I had cautioned from the last post. At the beginning of the last week of February there were a few indexes like the SP500 that hadn't touched its 50DMA and I was anticipating that it will signal a short term buy signal when it does touches it. Didn't quite get there for the SP500 as the stock market just rallied instead since then. As the chart illustrates the SP500 found support above the 50DMA and the green uptrend support channel line. There's also a red uptrend resistance channel line that could give pause or pullback of the SP500 when it reaches that level. As the January 2nd post stated the rally since the beginning of the year could be a major breakout higher for the global stock market as it seems like it thus far despite negative divergences in some indicators (for example, the new 52 highs of stocks is lagging the price movement higher of the major indexes.) The rally could continue to move slowly higher but like the recent correction in February has shown... it can take a week of correction to give back almost four weeks of rallies. So there's still some risks as I am getting short term sell signals but the stock market has shown the ability to getting buying demand in this break out higher rally.

Reversion back to the 50 day moving average

It has been a slow move higher for the stock market since the beginning of the year. The chart I will review today is the Russell 2000 which broke to new all time high at the new year and has continued higher. Most of the global stock markets have also streaked higher too. At present many of the indexes' 50 moving day averages are being 'stretched' for the time being. In most cases, the indexes don't go beyond two to three months without 'touching' their 50 DMAs. It's being over two months now for some of these indexes like the Russell 2000. So for the short term, I would expect the stock market indexes to either move back down toward the 50 DMAs or they could meet half way as they consolidate/pause at current price levels. These break outs to higher levels appear to be bullish for the long term. But at the same time I'm reading some reports of some sentiment indicators that are at extreme levels usually related to at or near stock market tops. So for the time being I'm still personally in about +20% long positions with sell stops ready in place when there's a break down. And since my signals are still hinting short term sell risk, I won't be more aggressive until the signals move back toward higher reward buy signals.

Is this 2 day explosive rally bullish for the long term?

Being enjoying the holiday season and was waiting to add a new post at the new year. Since my last post a month ago about overbought risk, the major indexes of Nasdaq, Nasdaq 100, SP500, and the Dow either consolidated or pullback back a little. Though the Dow Composite and Russell 2000 indexes did better by moving higher instead and that's usually a bullish indication of the current momentum higher. Toward the last trading days of the 2012, the market was at or near oversold level and I was waiting for the SP500 to fall below 1390 before I initiate a +75% buy position and short term buy signal. That didn't happen as the lowest it got was 1398 on Monday and proceeded to rocketed higher on anticipation of the deal against the 'Fiscal Cliff' and rocket higher again on Wednesday on the deal being completed. Instead I got in late the last two days on less than 50% positions. The last two days was a rare occasion of having 90% of stocks closing higher for two straight days. Such occasions in the past has generally being bullish for the stock market 6 months afterward. The Dow Composite and the Russell 2000 already made 52 weeks high which is very positive. So will see if the stock market can maintain a bullish momentum occur again for the coming 6 months. For the time being, the stock market will be at overbought level tomorrow and if it can weather a light pullback in the coming days then that should be a positive indication for higher prices for the 1st half of the new year.

Persistent upward momentum but still short term risk ahead.

Stock market ended the week about 1.5% higher than the previous week with about an 1% pullback at the early part of the week. With the persistent upward momentum the last two weeks, this lessen the possibility of a big pullback correction back to the November lows 2+ weeks ago. Given the short term overbought there's still chance of some consolidation/pause or pullback. If the strong momentum continues then there could be no more than 1 to 3% pullbacks as the stock market make a slow move higher. With the uncertainty for the moment I don't intend to trade more than 20% of my portfolio this week (unlike 2+ weeks ago when I was 100% invested based on the medium term buy signals at that time.)

Now at short term overbought after a nice rally

Got the rally as stated from the last post. At levels where a short term correction or consolidation should occur.