Sunday, September 28, 2014

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.

Wednesday, September 3, 2014

Bearish Engulfing Pattern in QQQ Could Mark a Top

QQQ Bearish Engulfing Pattern Could Be a Market 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.