Trader’s Narrative

After three consecutive up days - initiated from an extreme oversold condition - the stock market is now pausing to catch its breath.

Although we saw positive breadth today with advancing volume easily trouncing declining volume on the Nasdaq, the market indices didn’t make much headway. The extreme condition I outlined in the Dow Jones Index has now ameliorated with higher prices. In a very short time we’ve gone from only 13% of Dow stocks above their 200 moving average to 37% above their long term moving average.

Cautionary Breadth
As of today’s close, 80% of Dow stocks are above their 10 day moving average! No wonder we’re pausing here. The last time I mentioned this little breadth indicator, was at the beginning of the month when the Dow Jones had 90% of its constituents trading above their 10 day moving average.

When it comes to the S&P 500 index components, more than 80% of them were above their short term moving average yesterday and a slightly less percent today.

So while this presents us with an overbought picture, it is short term in nature. And if we have truly put in a bottom as I believe we have, then instead of losing ground (again), the market will consolidate by chopping sideways before continuing higher. If we do go lower in a cascade fashion, then I’ll know I was wrong (again!).

What, Me Worry?
I prefer to let others worry for me. When or if, I notice that no one is worrying, say like in 1999, then I pick up the slack. Right now I’m kicking back and delegating the hard work of wallowing in gloom to others.

There are so many things to worry about: gold approaching $1000, crude oil at $100, the global credit crisis, the dollar collapse, runaway inflation caused by spikes in staple commodities, a never ending war which is bleeding the US treasury, etc.

Building a case for the bear side is far too easy. Which is why I’m wary of falling for its seductive graces.

A bull market climbs a wall of worry and right now there are ample bricks around.