US Stocks Have Possibly Topped for This Bull Market - At Least Expect Further Decline From These Levels

This post is just a brief update that my opinion is still that stocks are topping or have topped last week.  The recent multiple time frame divergence  was near picture perfect for a top, similar to the bond market top in 2012.

Price logic on the short term immediately off the top, showed a complete retracement of the the last little thrust up in less time than it took to from suggesting a counter trend move is developing with the possibility of a significant high having occurred.

On an intermediate term basis, the Russell 2000 has completely retraced its entire August-September rally in less time than it took to form, suggesting intermediate to long-term strength is down in that market.

The VIX/VXV ratio has not spiked above 1.0 yet on this decline, and that imbalance has market all of the recent significant lows over the last year plus, so I don't view a bottom as being in place on Friday's rally attempt.

Bearish Engulfing Pattern in QQQ Could Mark a Top

Click on Chart to Enlarge

Today both the QQQ and SPY formed bearish engulfing candlestick patterns.  These are top reversal patterns, and should be considered significant if there is a technical overbought condition, a failed breakout on a chart, or a bearish divergence.

Currently, there is a triple time frame (weekly, daily, hourly, and even 15 min) bearish divergence on the MACD of the QQQ chart with other massive divergences in breadth, volatility, and put/call ratios.

So my current suggestion here is that you completely exit all index long positions on the US stock indexes.  This has the technical and sentiment back drop for a potential major high, and we are entering the seasonally weak period of Sept/Oct, which should just be an additional factor for the trader to understand here in terms of market dynamics.

Short positions could be established on a break of today's low, with an initial profit target of 1:1 with a stop above today's high.  So since this has the possibility for a big move down, you only exit 1/3 or 1/2 the position at the initial profit target.  And another option is to just hold the whole position with a stop adjustment mechanism and allow the market to go however far it will until we get a legitimate bottom reversal signal.  The pros to the first strategy is a higher win or breakeven rate, but a probably lower expectation given the quality of the set-up.  The second scenario likely has a lower win rate but a higher overall profit expectation in my opinion.