Is the tide going out? Who's not swimming with a suit?

Overbought may be the only way to describe the market of the past nine days. Up on every session. It's no wonder we're getting short signals.  The Dow Jones Industrials ($DJI) are lagging the SP-500 ($SPX.X) which seems unusual. Yet the Dow Jones Transports ($DJT) are leading both the Indiustrials as well as the SP-500. So, Dow theory is leaning bullish. It is a Bull driven market, and waiting for these usually profitable counter trend pull backs can get old. But I would be remiss if I didn't update you on the current readings of last night's MktDiff indicator.

You can see the recent three signals we've had indicating a short here and how similar this period is to our more recent January 2010 series of days that did pretty much the same thing.

The decline in volatility over the last six months has brought trading back to June 2007 levels (chart of $VIX.X below) and put many traders to sleep. While the decided lack of volume makes one wonder if there's not a better place to put your money? Fear not, someone somewhere will do something to rattle the stability and make the spreads go wider. Make sure you're wearing a suit when the waves go out. I hear those tsunami's can really pull the water out from under you before they hit.

Keep your pants on,

Klatuu

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Market internals indicating a bullish stance

There are conflicts in this market with the Bears throwing down the Bulls more frequently lately than anytime since last March, however, an indicator that picks out swings in the braoder market has a different opinion. It would appear that our own indicator,  the MarketMatrixHiLo indicator, is showing a significant decline in it's lows. You can see this in the yellow line at the bottom of the chart. Correspondingly, the orange line of Highs is coming up from a recent bottom and crossing the yellow line's lows.

Similar to this scenario, I've marked other occurances using the blue vertical lines, showing noted short term bottoms in the market. Those other occurances have  seen sharp declines in both price and the MktMatrix's Low line followed by a steady climb up of the High line over the next two to three days, which has been followed by a corresponding climb in price as well.

The highlighted white center box is a blow-up of the indicator on the lower right corner. Here you can see the SP-500 cash index. While this doesn't indicate the market will stay up, it seems to indicate it we'll have an upward move.



Klatuu

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Market Update 12/08/09

 

Today’s sell-off is the 4th foray below the 1090 area in the last 3 weeks. The SP-500 is sitting on its lower regression channel trend line which held a previous test (the 1029.38 pivot L). Generally when an area that has been support multiple times fails, it sets up a pretty big pop to the downside. If we break the last pivot low of 1083.74, a move to the 1075.39(call it 1076) 1.23 fib extension below the post Dubai rally should be a slam dunk

I will take some SPY put profits on a follow thru of today’s sell off into that area. This area is also the 50 retracement of the rally from 1029.39 to 1119.13. That fib confluence is logical place to take some off the table and hang in there for a larger move with a stop on the remainder at break even.
I am playing for a larger move because:
1. The market has been locked in a tight consolidation for three weeks, which usually culminates in a large move.

2. The major negative breadth divergences discussed in these previous posts-

http://marketkinetics.blogspot.com/2009/12/breadth-divergence-still-intact.html

http://marketkinetics.blogspot.com/2009/12/market-update.html

-is still intact and has not been resolved in a major sell-off. (Yet)

However, the trend for 9 months has been, don’t stay short for too long. With that in mind I will go with my indicators and stay short until they tell me its time to go long or the stop gods hit my trail.


Good Trading

KW

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