John Maynard Keynes said that the market can remain irrational for longer than you can remain solvent � or something to that effect. That comes to mind when viewing this market, with an ever-growing overbought condition, but no real price correction in sight. At least with options, we don�t have to risk our solvency to take a position � we know our risk beforehand.
The stock market, as measured by the Standard & Poors 500 Index SPX �continues to rise (slowly) almost every day. And almost every day there is an early attempt to sell the market, but it is thwarted by buyers in mid-to-late morning, and the market returns to unchanged or positive status by the end of the day. In fact, this has occurred so frequently lately that one might think himself stuck in the movie Ground Hogs Day, forced to live the same day over and over and over.
SPX, unlike some other major indexes, has not yet exceeded its 2011 highs. Those represent resistance in the 1,350-1,370 area. To the downside, there is support near 1,300. More importantly, the major bullish trendline that defines this bear market � the one that connects the October and November lows � is at about 1,270 right now, and rising at a pace of about 2 points per day (10 points per week). If that trendline were broken, it would be very bearish, but we are not envisioning such a break at this time, even if an overbought correction were to occur.
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