General Update

I wanted to follow up on a few ideas from posts the last 1-2 weeks. First, I had mentioned that optimistic sentiment among sentiment surveys has yet to increase to extreme levels despite many other sentiment factors indicating excessive optimism. I had also suggested that a breakout of the 920 level on the S&P 500 may increase the bullish opinion of the AAII survey. Well despite a small move above 920 by last week's survey, the bullish % actually fell substantially. This could be interpreted that the individual investor group does not believe the breakout. That would actually favor a further market rally. Since last week we have continued to rally, though not a whole lot. It will be interesting to see this week's results later in the week.

Another thing I had mentioned was that I had seen several good looking reverse head and shoulders patterns that had not broken out yet. By today, several stocks have broken out of patterns, and the volume on those stocks has picked up substantially helping the bullish case.

Stocks that should be on swing traders watchlists are OSG, SNDK, ZEUS, KLAC, and KWK which all broke out of patterns and could be purchased on a lower volume pullback to the breakout price if the market gives up some gains in the coming weeks. Also VSEA has not broken out yet, but volume is picking up and the pattern looks good.

The simple fact that several top quality companies are breaking out of these patterns makes me take seriously the prospect of a further market rally in coming weeks, though the short term still looks ripe for a pullback.

Stocks on my watchlist for bearish short to intermediate term trades are T, SUN, ABX, PNRA, UPS, CL, ADM, and WMT. In particular, some of these stocks are not confirming the new highs in the markets over the last few days. Stocks that are lagging are likely to get beat up on a market decline.

On a technical note the %K on slow stochastics in now over 80 as of yesterday. The last 5 times it reached the 80 level the market made a short or intermediate term top within one day (which would be today). This again is another short-term bearish warning. Coupled with today's gap up opening and high volume stalling type behavior forming doji candles in SPY, DIA, and QQQQ, I believe the today was likely a short-term high.

Pete

Pete