Early this morning we saw the futures pulling down as the Nasdaq in particular was very overbought on its short-term sixty-minute chart. Not just overbought but ugly overbought. Thankfully, we saw a nice little gap down to start the day and better yet, it ran lower. I turned my eye to the sixty-minute chart on the SPDR S&P 500 (ARCA:SPY) to see where support was and once it hit the 20-day exponential moving average that was the end of the selling. Slowly, but very surely, the market started to climb its way back up. As the day moved on an agreement between the EU and Greece was reached for a four month extension and up we went yet again. Every excuse a bull can find is met with a ticks higher on the indexes.
It can be bad news made good in their minds because now the fed will keep rates lower. It can be actual good news such as saw from the Greece announcement. It can be an earnings report. It can be just about anything to get them rocking in to buy. Even something as simple as a pullback to ordinary support. The bulls rush in and thus the bears are getting more and more cautious about getting aggressive. The market not caring about overbought as the day moved on. When all was said and done the bulls are feeling good about themselves while the bears have to be licking their wounds. Not fair i will agree but this is not a game about fairness or intense emotions. It's about what price and those oscillators say.
Banks, banks and more banks. Getting involved with the banks made sense today as they bounced perfectly with the Spy when it hit the 20-day exponential moving average. All the banks hit their 20's from the top and blasted off. This is classic bull market behavior. Unwind overbought from the top and hit a key moving average and then blast back up. I am a big believer that the banks or the financial's overall can't under perform forever if the market is to continue it's upward trend.
Sure, it has to have periods of backing and filling when it gets too frothy, yes we can even get too frothy for a day or so, but holding at support with a big volume blast up such as we saw today has to keep you on the bullish side of the ledger, even if it doesn't feel right due to froth and overbought. Never fight the trend until you see the proper reversal with massive volume off the top. It wasn't just the banks though, good performances were found in many other places as well such as the semiconductors, and, of course, the biotechnology area. The banks led the way, however, and that's really good to see. Strength came from the most important place and the most important leaders in that space.
Now, your very annoying, but daily reminder, about froth and how off the charts it is. NEVER think you're better than the market because as soon as you the lesson will be taught quite painfully. Respect it. We know things are bullish. Price and oscillators are great, but froth is off the charts, and when it is you can get smoked at any time to the down side. No excuses needed, so just keep that in mind. The spread at the end of last week was a silly if not ridiculous 42.4%. It should be an even more ridiculous number when we get the readings next