Still Waiting For Some Weakness

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I would like to see price move below the red uptrend line before getting back in a new bearish trade. At this point I expect another push above the recent high as there has been no classic reversal candlestick and all the sensible ones at this point would involve a gap up or run up to new highs and then reverse.

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This chart is a 60 min chart and shows the indicators I am watching for a new trade. The Parabolic SAR is the dots on the price chart and will show when the parabolic move up is broken. The MACD is showing a bearish divergence and started to cross down today. The MACD combines features of moving averages which are good signals for trading trends with a typical oscillator which is good for trading ranges. With the market still in an uptrend, you need to see a divergence at a minimum to consider a trade, but often waiting for the signal line go below 0 will keep you from getting in too early against a continuing divergence. The bottom pane is the +/- DI from the DMI indicator. This is a trend indicator. Right now it shows weakening trend but still in bullish control because the +DI line is on top.

So a combination of the above indicators - Parabolic SAR sell, MACD signal below zero, -DI cross above +DI, and a broken trendline - should provide a good indicator based sell signal. I will also look for any bearish reversal candlesticks on the daily chart.

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Now I made this chart this weekend, so the last 2 days of data are not there but there has been no change of significance. It shows the XLF:SPY ratio. What has been typical at market tops is for financials to be underperforming. Financials tend to be early to top and turn down and then exhibit outperformance off lows of new uptrends. This chart shows how financials are underperforming on a relative basis to the S&P 500. Because of this, I may shift to looking at financial sector inverse ETF's for trading purposes at points. I have considered this before, but have kept it pretty simple with primarily S&P related funds. But in any coming correction, I think the financials are likely to underperform and give a greater return given similarly weighted ETFs.

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The chart shows the S&P at top, the equity put/call ratio in the middle with 21 and 34 day averages and the NYSE new highs in the lower pane. We are seeing a divergence of sorts in the averages of the put/call ratio as price has been moving higher but the averages have been flat and slightly up for 2 months. I have seen this type of divergence happen at other important inflection points, so it is something to note. Also, on a short-term time frame the OEX put/call ratio was 2.00 today which typically signifies that smart traders see the need to hedge over the short term.

The lower pane shows that the # of new highs has diminished a bit on this leg up where other legs up led to increasing # of stocks making new 52 week highs. This could catch up with further strength, but for now, particularly with the Dow well above the Oct highs, this is also something to note. What this means is that the market is being pushed higher by fewer stocks. Also, the more heavily weighted stocks may be performing better, than stocks as a whole, which is evidenced by equal weighted indexes rather than the standard indexes.

Lastly for this post, there are a handful of time cycles from last week to this week, that would indicate this week being a topping week most likely. This is also in the context of a leg up in the markets that is mature (by both time and price measures) in comparison to historically similarly positioned markets major lows. I plan on going into a bit more on that in an upcoming post.