The truth is probably a little of both.
The critical issue remains that we have not really seen any real meaningful improvement in the economic outlook. Arguably, the economy has improved somewhat over the last year. The question remains: How high can you take stocks without significant economic improvement? The reality is that stocks can go as high as the mutual funds and institutions want to push them. Unfortunately, we could be setting ourselves up for another bubble down the road. With liquidity in the market place and nowhere to put your money to work with any real return - the appetite for stocks and risk is alive and well.
From a day or swing trader's perspective one really should not care how high or low stocks go because your objectives are quite different than that of an investor. However, investors have a different consideration in today's environment. If you own stocks you purchased at undervalued prices and they are now becoming overvalued we would urge caution. Stay in them as long as the technicals stay favorable. This approach allows you to maximize your gains while not overstaying your welcome.
On the very short term (daily charts) we have registered some very overbought readings so some type of a shake-out would not be a surprise. However, as long as the technicals stay positive on the weekly and monthly charts and suggest higher prices which currently they do, we will respect them and take a "watch and see" attitude as we go.
Major support and resistance levels of interest
Here are some noteworthy resistance levels of interest on the indexes as we move forward:
- S&P 500 (SPX) 200 Week Simple Moving Average 1226.33 and 1228.74 (61.8% Fibonacci retracement level)
- DJIA 200 Week Simple Moving Average 11,129.78 and 11245.95 (61.8% Fibonacci retracement level) - These price levels should act as some very stiff resistance if indeed we do move up to these levels.
- S&P 500 (SPX) support levels of interest on the short term: 1155, 1145/1146, 1139/1140, 1133/1134 (20 day Simple Moving Average )
- S&P 500 (SPX) resistance levels of interest on the short term: 1164/1165, 1172/1173, 1177, 1180
Since late November 2009, we have been teaching our members in our nightly video updates and daily live webcasts to be vigilant in this complex market environment. Regardless of the very short term we still believe the technicals support further rally efforts towards the major resistance levels we outlined above. If and when we get up into the major resistance area, at that point we will be teaching our members how to consider hedging their overall portfolio as well as positioning themselves on the short side while limiting their risk. The real time trading setting allows many to learn how to day trade at this interesting juncture in the markets. Currently, many of our members are coming into our real time trading environment and asking us to show them how to still day trade and profit in this grinding higher market environment while being on the lookout for a pending short term correction.
Regardless of how you play the market, at ProfessionalStockTraderLive we always preach for you to use patience, discipline and stops.
