04/29/2011 Market Outlook (A Reliable Top Signal)


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SHORT-TERM: EXPECT SOME WEAKNESS AHEAD

Three cents:

  1. Still expect a pullback, but it’s difficult to time now. One thing I’m relatively sure is, pullback or not, we should see more new highs anyway.
  2. Cannot exclude the possibilities that the market was topped (or very close) (either short-term or intermediate-term top).
  3. Trading wise, before seeing a sharp sell off, the name of the game still is to buy dips.

Why should we see more new highs ahead? Because, the RSI in chart 1.0.0 S&P 500 SPDRs (SPY 60 min) shows very strong up momentum so should be more new highs ahead until a clear RSI negative divergence is formed. Trading wise, accordingly, the very first dip is buy. Why? Because only after a pullback, the price makes a new high while RSI cannot make a new high then a negative divergence can be formed. Then why is a negative divergence needed? It’s the law of inertia. A forward accelerating car cannot be simply reversed without reducing the forward speed first. The process of reducing the speed is equivalent to negative divergence.

SPY60min

In 04/27 Market Outlook and 04/28 Market Outlook, my major reasons for calling a pullback is SPX closed above BB for 2 to 3 days in a row which had very good chances of leading to a pullback since year 2003. Unfortunately (or fortunately) SPX closed above BB top again on 04/29 which had only one occasion since 2003, therefore the argument is no longer reliable anymore. (By the way, there’re 10 cases since 1991 that SPX closed above BB top for 4 days in a row, there’s no apparent short-term bearish edges. I generally don’t read such a long history anyway) This is why I said, although I still expect a pullback but cannot time it anymore.

Listed below are the reasons why I’m still looking forward to a pullback.

T2112, keeps rising. Everyone knows such a rising will be reversed someday so if only I keep yelling for a pullback, I’d be right one day. But this does not help in trading at all so this is why I don’t wan to time the pullback anymore. Should be sooner than later, that’s all I can say.

T2112

T2122, as I mentioned before, this is my ultimate weapon for monitoring overbought/oversold. Now it’s very close to the “recent” extremes.

T2122

Dollar down 8 days in a row plus volume surge and too stretched below MA(200), so we should see a short-term rebound soon. The statistics below is from Bespoke. Although the original purpose of Bespoke is to say that in the intermediate-term the dollar is bearish, but it also clearly says that there’ll be a rebound in the short-term. The rebound of the dollar would mean a pullback of the stock market. Besides, interestingly, take a look at what happened on EUO before the Friday close although the correspondent FXE didn’t drop much. Euro weights almost 75% in the dollar index, so if EUO didn’t lie than Euro should drop sharply the next week which in turn means a sharp rebound of the dollar.

UUPDaily
USDWeekly
USDPerformanceAfter9ConsecutiveDownDays
EUO15min

Why cannot I exclude the possibilities that the market was topped? Because 0.2.4 Nasdaq Total Volume/NYSE Total Volume surged to a new high which is a very reliable top signal. Combining with the SPY ST Model top signal mentioned in the 04/28  Trading Signals, there’s a chance that the market was topped, although any top calling looks ridiculous now and it conflicts with the RSI negative divergence mentioned above.

NATVtoNYTVRatio

The chart below is the NORMALIZED Nasdaq Total Volume / NYSE Total Volume Ratio. Also argues for a top.

NormalizedNATVtoNYTVRatio

I’m not confident about such a top calling for now although I believe a short-term pullback is due. The Friday’s money flow is very interesting. AAPL Block Sell to Total Sell ratio is 2582 / 4398 = 59%. Either it’s because of QQQ rebalancing or those big buys knew something terrible is about to happen. And it also could be the reason that Nasdaq Total Volume / NYSE Total Volume Ratio surged, which is why I’m not confident about the top calling. By the way, INDU is very strong those days, but interestingly, for 2 days in a row DIA had a very high Block Sell to Total Sell ratio, 246 / 327 = 75%, 345 / 414 = 83%, something suspicious is going on.

MoneyFlow

Anyway, top or not, let’s watch the CPCE trend line the next week. Breakout and hold then we’d have 2 reliable top signals and that would be something worth serious attention.

CPCE

INTERMEDIATE-TERM: SPX NOW IN 1352 TO 1381 WAVE 5 PRICE TARGET AREA, WATCH FOR POTENTIAL REVERSAL

See 04/27 Market Outlook for more details.

SEASONALITY: BULLISH MONDAY AND FRIDAY

According to Stock Trader’s Almanac:

  1. First trading day in May, Dow up 10 of last 12.
  2. Friday before Mother’s day, Dow up 10 of last 15.

The following May seasonality statistics is from Bespoke.

MaySeasonality

The following May seasonality chart is from Sentimentrader.

MaySeasonalityDayByDay

ACTIVE BULLISH OUTLOOKS:

ACTIVE BEARISH OUTLOOKS:

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST: 

TREND CANDLESTICK COMMENT
QQQ & Weekly UP Doji 
IWM & Weekly UP Spinning Top  ChiOsc is way too high.
SSEC & Weekly *DOWN *Officially in downtrend now, be careful.
EEM & Weekly UP Doji 
XIU & Weekly DOWN *1.5.1 XIU.TO 60 min: Ascending Triangle?
TLT & Weekly UP
FXE & Weekly UP 3.1.1 US Dollar Index Bullish Fund: Volume surge, bottomed?
*FXE is now too high above MA(200), see weekly chart.
GLD & Weekly UP *ChiOsc is way too high.
GDX & Weekly UP
USO & Weekly UP  
XLE & Weekly UP
XLF & Weekly *UP Hanging Man Bear Flag?
IYR & Weekly UP Hanging Man 
XLB & Weekly UP Doji
  • * = New update; Blue Text = Link to a chart in my public chart list.
  • UP = Intermediate-term uptrend. Set when weekly buy signal is triggered.
  • DOWN = Intermediate-term downtrend. Set when weekly sell signal is triggered.
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