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 another drop

Two of our indicators, the MarketMatrix and the MarketUpDownCandles, are showing a possible short term peak, usually followed by a modest drop. A third indicator, MkttDiff, seems to confirm both of these. First let's look at the MktUpDnCandle.

When two or more of the red bars on the bottom indicator in the chart are followed by a small blue bar, it has usually been followed by a drop in the market's price.You can follow the bars on the bottom with the price to see this pattern. Another of our indicators, MktMatrix, also looks at internals of the market to identify patterns of movement. The yellow line (in the chart below) usually peaks on the indicator, and is followed by a higher price, peaking and then falling again. This is then followed by the Orange line coming from the bottom of the indicator and crossing the yellow line. At that cross, the market usually shows a decline in price while it digests this change. Sometimes the crosses can take a couple of days. Finally, as a confirmation, the MktDiff indicator (previously discussed here) is also anticipating a market drop (2 chart down).

MktDiff anticipating a drop in price.

Plan accordingly and good trading,

Klatuu

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MktRSI for March 1, 2010

Our trusty MktRSI indicator and it's companion MktDiff indicator both have their own views of the market internals.MktRSI is good at anticipating the extreme highs and lows in the market, anticipating sharp turns, while the MktDiff indicator demonstrates which signals are stronger than the noise.

 There are also divergences one can see in the MktRSI and I've pointed out some examples in the chart below. I'll be watching to see if the next couple of days has a setup of a divergence like the examples.

Klatuu

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