The Moment of Truth

Or is it?  Apparently, everyone's a bull.  The market corrected 9% from January into February and despite an overwhelming number of bad economic reports, it seems everyone is looking for the markets to continue its trend higher as we closed equal to January's high on Thursday.  Bullish news is hard to find.  However, bullish sentiment abounds. 

The NYSE short-term McClellan Oscillator shows a market that is very overbought.  However markets can remain overbought for extended periods of time, so don't bet the farm on that one.  Volume for this run is also suspect.  If you remove the huge volume from some of the low priced names like AIG (NYSE: AIG) and Citigroup (NYSE: C) the last few days, volume would be extremely light for any condition - let alone a market trying to push into new 18 month highs.

In the end price rules the day and Friday will present the moment of truth for the S&P 500.  Will the market rise for the 10^th day out of the past 11?  Or will the oversold condition and double top formation cause a pause in the markets strong price advance on paltry participation (volume) and we have at least a temporary pullback. 

If the markets do break out to the upside watch the reaction in the tape.  There is likely to be a quick spike as shorts rush to cover and those that are underinvested rush to take on new positions for a potential new leg up in the markets.  If there is not a spike up in both price and volume be careful not to jump in too deep as we are in nosebleed territory with our short term overbought condition.