These Markets Look Overbought Already
All of the major stock indexes are surging higher after the U.S. fiscal cliff deal was averted last night by the U.S. politicians. What most traders and investors should realize is that while the U.S. government did not go over the fiscal cliff there was really no grand bargain reached. This tells us that the next two months could be very turbulent for the major stock indexes as politicians will once again try to claim victory over the other party. After all, last night's vote to avert the fiscal cliff deal was really a win for the Democrats since it was the democratic controlled U.S. Senate that created the current fiscal cliff deal resolution in the first place.
Now the topics of the debt ceiling, spending cuts, extended unemployment compensation, the budget, and more will be debated over the next two months. The one thing that most people can agree on is if the politicians see the stock market decline for any considerable period of time they will usually be quick to act. For some strange reason the politicians do not like to see the stock market decline very much.
So for now, the major stock indexes are soaring on the trading session. The SPDR Dow Jones Industrial Average (NYSEARCA:DIA) is now approaching its most recent high made on December 19, 2012 at $133.70 a share. Today, the DIA is trading higher by $2.77 to $133.38 a share. Traders must watch for near term chart resistance around the $134.00 levels. In the meantime, leading stocks such as Apple Inc (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG) are all climbing on the session. The home-builder stocks which were one of the strongest sectors in 2012 continue to rally higher as well on the session. This leading industry group looks to be trading right into near term daily chart resistance today, so further upside is likely to be limited. Leading home builder stocks such as Lennar Corp (NYSE:LEN), Toll Brothers Inc (NYSE:TOL), and D.R. Horton inc (NYSE:DHI) are all trading higher on the session, but near term daily chart resistance is now in play for the industry group.
The large financial stocks have been the leading stock sector in the market recently. This industry group continues to defy gravity climbing sharply higher again today. This sector is now looking slightly overbought, however, it is technically still in a confirmed uptrend.
We must now look for signals that the quick rally created by the politicians could be short lived. The truth of the matter is that the politicians could have actually made things worse for the economy. Traders should remember, the stock market usually trades ahead of the actual economy. Any stock market decline is just warning us of a weaker economy to come.