Wednesday, January 2, 2013

Bullish As Bullish Can Be - Now It's Time for Digestion

My gut was telling me that the market was setting itself up for a "sell the news" event with the massive gap we saw this morning, but that certainly wasn't the case today.  The action was about as bullish as you can get, with stocks giving very little back off of the gap intraday and actually closing at the highs for the session.  I went long a few names today (although entries weren't ideal) and will continue to look for the market to rise from here.

We do need digestion of this recent move, however, so if you are not yet invested, patience is key.  One of my custom overbought/oversold indicators which uses RSI(2) measurements for individual stocks is at the highest level I have ever seen.  I created this indicator back in 2010 and the only days that have even been close to the level I see today (+2706) are July 3, 2012 and July 26, 2010.  This is telling me that there are an overwhelming number of individual stocks that are very overbought (yes, you're welcome for stating the obvious). 

Just be careful out there.  This is hopefully just the start of a much bigger move in 2013 (we saw a similar gap to start 2012 and saw a big, smooth rally for two months) so there will be time to get in if you're patient.   You don't want to chase however and get caught in a normal pullback that puts you behind the eight-ball right away.   Ideally, we'll see a few days of sideways action that allows some bull flags to form on these very strong moves from today.   If that happens, it will certainly be time to load up.  Good luck.

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