Wednesday, July 22, 2009

2 Days of Stalling- DIA and SPX

Click on Charts to Enlarge

The notes are on the charts for the candlesticks, etc. The charts aren't really in the order I envisioned, but I don't feel like doing more clicking to switch them.
The top chart from shows Up Issues (% of stocks up on the day) and Up Volume (% of volume going into stocks that are up on the day) for the last 10 days. Notice how for the last 5 days there have been successive lower peaks even as price has gone almost straight up. That is occurring on both the NYSE and the Nasdaq. So what is that telling us? Fewer and fewer stocks are carrying the market each day. Participation is narrowing substantially. While this is only a shorter term indicator, after 8-11 straight up days and narrowing breadth, you have to assume more than a blip of a pullback will occur very soon.

The next chart also from shows the primary model I use for all blog trades. Same thing here. A massive divergence for the last week. That is also visible on the TICK chart in that image as well. Now, it doesn't feel right to say that this is a stronger than normal bearish signal when the market has powered through the signal for 6 days in a row, but the only time I remember seeing a divergence like this was at the March lows this year (which was a bullish divergence).

It didn't feel right then either, but if anyone recalls the trade there, I suggested placing limit orders to catch QLD as it undercut the Nov lows, potentially forming a double bottom. In that case the S&P had broken below support from the Nov lows but the Nasdaq hadn't. In the current case, the Nasdaq has broken through resistance, but the S&P hasn't, putting the S&P in a potentially weak position and forming a possible double top to this rally. That QLD trade turned out to be the best trade of the year so far. While right now even I am convinced that the market will go up roughly 1 billion percent per day from here on out, objectively I still have to believe the market could be on the verge of a major turn.

In any case there has been no exit signal for the SDS trade yet, and I am waiting to see if this resistance/double top holds before exiting the BGZ trade.

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