We are in a bull market. This isn’t news to anyone by now. We’ve been in from the lows and have ridden this puppy all the way up. However, there comes a time in the evolution of a bull market where you have to start reining it in. It doesn’t mean you can’t be in some or in good set ups but it does mean that entering more plays from this point forward carries extreme risk for the short term. Not the medium term, the short term. The S&P 500 broke through 1151 today with some decent force and may want a bit higher before selling to retest but let’s go over the RSI’s and stochastics on the daily charts across the major index charts.

(See today’s charts: COMP (Nasdaq Composite), SPX (S&P Large Cap), The Dow DiamondsTrust Series 1 (DIA), TSX (Toronto Stock Exchange), SOX (Semiconductor Index).

As of the close today, the RSI and stochastics were as follows on the Nasdaq, S&P 500, Dow, NDX and the Wilshire respectively. 95/75, 96/73, 98/69, 96/74 and 97/75. Many RSI’s well over 70 with stochastics near 100. In other words, every point up from here is a massive grind in to extreme’s of overbought. The risk reward for new plays is getting very dangerous. It’s never different this time. The market will experience a pullback very very soon. Timing it to the moment is impossible.

However, from a larger scale perspective, to get this overbought means that this market is extremely healthy. Only strong bull markets get like this and that’s the ultimate good news about where we are, even at these lofty oscillator levels. It tells me that all weakness can be bought and to not wait for things to get oversold because it is unlikely that things will get oversold. Buyers will rush in at any hint of decent selling or if we get anywhere near solid support, whether it’s gap, price or wedge/trend line support. Overall, the bears have lost their grip and the bulls are in full control which is why I never short a very overbought market. Never go counter trend. All you do is lighten up on new exposure.

You have to hand it to fed Bernanke today as he told the world to stop wasting its time talking about a rate increase. He told everyone for what seems like the 100th time that he is not going to raise rates soon as the economy is in very bad overall and there’s too much risk at even the slightest of rate hikes. No making the noose tighter as things are really poor out there. Ok? Now stop looking for that hike!! The market loved this news as it was unnecessarily worried that things were getting better too fast. Sounds crazy doesn’t it. The market wanted to be assured that the fed won’t choke off any possible lending. It is now more than happy with knowing it’s not happening any time soon and this will help carry the market higher over time. Strange how bad news is good news in this crazy game. Bottom line is the fed wasn’t about to do anything to hurt the economy further by hitting the stock market lower in a big way. The rate hikes will have to wait until things actually do improve economically.

We tried to edge higher out of the gates today but all we could do was churn at 1151, hitting 1153 a few times and then just falling back. When it seemed we’d just hang out until the fed came out in the afternoon, the market started to bid and up went, moving slowly over S&P 500 1151/1153. The rest of the day was spent grinding a bit higher still with the market closing on the highs or very close to them, depending on the index. Solid action but again, we’re now at extreme levels of overbought so nothing will be from here until we finally get some much needed selling. We can grind out a bit more but folks, we’re about to pull back and it’s very much needed if this market is to go appreciably higher. Grinding up is no fun and is limited. The coming pullback, and it won’t be terrible, will help set up more fluid upside. So many stocks look great in handles thus I don’t see anything bad but one way or the other we will need to unwind those oscillators. In the end, yet another good day for the bulls. The bull market continues onward.

The job for the bears is getting more difficult as time moves on. Not only are all the index charts above their 20- and 50- day exponential moving averages, the run up has created many gap ups that are now acting as support on pullbacks. If the bears can take out one gap up, there’s yet another one and below that, another one acting as strong support for the bulls. The more gaps and moving averages that exist below current price, the more deflated the bears get. Just too difficult to get enough sellers when they all see such strong support they know the bulls will buy just underneath. They just give up basically. The Nasdaq is leading but everyone is participating and thus these types of gaps, etc exist everywhere from leading stocks to leading indexes. while things may be very overbought now, know that playing anything but longs will be difficult indeed.