I wanted to post my opinion about the overbought condition so many traders are talking about. I agree that the move up from the 10,600 low has been strong but from the 9/26/11 low to where we are now we have had a pullback inside of that wave and the pullback was a .618 so it is definitely a relative pullback to the prior wave. The pullback I am talking about is the 11/21/11 10,200 low.
I would argue that we are in a Monthly wave so yes the daily and even weekly can look extended or overbought and still go higher. It is really the Daily chart that will look the most extended inside of the Monthly wave. If you look back at the prior Monthly wave from 9/02 low to 10/07 high then we pulled back to the 3/09 low and are now in the current continuation wave off the 3/09 low.
There was an important point recently where on the Daily chart we were 127 bars high to high and 62 bars low to high.
This post: http://wwweminischool.wordpress.com/2012/01/07/es-daily-chart-62-bars-up-127-bars-down/
We broke through that level to the upside and we did not even get a minor pullback off that resistance. I would say it was that occurring that confirms the higher time frame has kicked in to the upside. The ES, NQ, TF and YM all look a little different and the TF still has a major resistance that it needs to trade through but on average the trend is up.
We were called crazy so many times pointing out support over the last year but until the pattern has truly broken to the downside it is too soon to go short. Of course patterns can fail but we are sticking to the bullish pattern until we are wrong which we will be at some point.
The 11,200 was an important level:
http://wwweminischool.wordpress.com/2011/11/28/dow-11200-bounce/
Just like a 5 minute chart can be extended in a 60 minute wave the daily chart can be extended inside the monthly wave and I would say that is what is happening and that is the current condition of the market.
Happy Trading,
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PS. The chart above is the true support of this monthly leg which is .35%
