Stock Market Analysis

Wednesday, May 08, 2013

Rally Continues Deeper Into Overbought Territory

The Dow gained 48 points today as positive sentiments created by the better than expected jobs report last Friday continues to hang in the air.

Fundamentals
The Jobs report last Friday was the only surprisingly positive piece of economic data so far these past few weeks but it was enough for the market to rally on since its release. However, the higher the market goes at these levels, the more dangerous it becomes without a good intermediate correction to set up healthy entry points. In fact, we are not seeing the kind of bullish enthusiasm from institutional investors these past few days even though the market has been rallying. My Star Trading System has also been detecting more bearish than bullish signals from individual stocks over the past few days. All of these tells me to be very careful about how to interpret the current rally. As I always say, the longer an intermediate correction is put off, the harder it will eventually hit. It is still time to be very cautious.

Technicals
The Dow has erased the last bearish divergence signal that was supposed to set up the intermediate correction by beating the April high and bringing the short term stochastics into higher territory. However, this also means that the market has merely become even more short overbought and even more dangerous. I would definitely not be newly long right now.

For now, the Dow turns a short term bull trend within an intermediate and primary bull trend.

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