Sell Warning From Total Put/Call Ratio

Click on Chart of Total Put/Call Ratio to Enlarge

I haven't had time to provide more detailed info on this, but Monday the total put/call ratio gave a sell warning with the 5 day average closing below the 20 period 1 standard deviation band.  I have discussed this signal quite a number of times here in the past, and you could search the blog for related terms to find more info.

Interestingly, this signal came at a slightly lower high in the SP500.

I will try to provide more detailed info here in the next day or two.

Currently I feel the two most reasonable price scenarios are for a continued rally to new highs as suggested in the recent video on an ending diagonal in the SP500 OR for weakness into the end of the month followed by a rally to new highs in May, which could also be the end of an ending diagonal if the price relations remain within the rules of logic for such a pattern.

The most recent signals from the ratio mentioned above were

• 12/26/14
• 12/26/13
• 7/19/13

Pete

Ending Diagonal In the S&P 500 Possible

Ending Diagonal In the S&P 500 Possible
This technical analysis video of the S&P 500 and the total put/call ratio displays a possible ending diagonal pattern forming since the October 2014 low.  It cannot be confirmed yet, but the first 4 out of the 5 waves of the pattern are potentially complete.  Ending diagonals MUST be followed by explosive reversals in price action as the video details.  If not, then the pattern is not really and ending diagonal.  An ending diagonal ENDS a major market move, and then price will explosively move in the other direction.
There is an FOMC announcement tomorrow which may lead to a market reaction.  Currently my expectation is for a rally into the end of the month.  Beware a breakout of the February high.  If a move to new highs occurs with broad scoped divergences in breadth, price, volatility, put/call ratios, and other sentiment measures, and a bearish top reversal candlestick forms around or below the upper boundary of the wedge, it could offer a great short selling opportunity for stocks.  
I will update as price action unfolds here in the coming weeks.

Stock Market Update 4-3-13

Click on Chart to Enlarge

As noted in the recent video, it is possible that the S&P 500 is forming an ending diagonal type pattern on the hourly chart with implications of sharp downside in the short term.

As of this morning, the trendline of the diagonal is now broken and the MACD is in a confirmed sell coming off of a mild bearish divergence which is typical of the momentum loss at the end of a price pattern.

In order to provide solid confirmation that we have seen a pattern of some degree complete with this ending diagonal, we will need to see SPY trade back below the March 19th low by April 9th.

Also continue to watch the QQQ for a break of the uptrend line since coming off the Nov 2012 low.  That would be a first indication that a possible head and shoulders top pattern may have completed the right shoulder.

Ending Diagonal in IWM - This May Be "The Top"

IWM 30 Min

IWM is now displaying a larger potential ending diagonal triangle than the one I had recently mentioned and had suggested would likely lead to new highs.

Notice the current sharp bearish divergence in the 30 min MACD.  That is a nice signal in a wedging pattern.  However in context of a daily time frame MACD which also has bearish divergence in extreme overbought region, it creates a nice dual time frame set-up to potentially play for a larger move.

88.69 would be the minimum target on IWM if this is an ending diagonal and the MACD turns into a sell.

IWM Daily

Record net short position by commercial Russell 2000 futures traders and record net long by large speculators shows the extreme "bubble" which this market is experiencing.  Additionally, Hulbert Financial Digest reports that newsletter writers are recommending about the same long exposure to the Nasdaq as they were at the peak of the tech bubble, with only that reading exceeding the current one.

So it is time to look to the short side of the market on a longer term basis here.

Short Term Exhaustion - Pullback Expected After Ending Diagonal

Click on Chart to Enlarge

Currently the stock indexes appear to be in the final stage of this vertical trending move since Dec 28th.  While the expected correction may be brief and lead to new highs for the rally, I believe based on the technical picture that a sharp, but maybe brief pullback is imminent.

The chart of the Russell 2000 etf IWM shows what looks like an ending diagonal chart pattern completed with a very strong bearish divergence on the hourly MACD.  While the Russell 2000 has been the leader, it has yet to make new rally highs in today's session, which may be another mild non-confirmation sign that this strong phase of the move is ending.

The other indexes have a similar appearance at this point.  And the VIX is also not confirming this move higher in stocks, which is typical of short-term exhaustion as well.

The short-term target for the IWM would be to pullback to 88.90 at a minimum.  We will probably see a larger pulback than any in several weeks.  But based on typical technical tendencies, I would expect a move to a yet higher high before a longer lasting intermediate term to long term price peak.

Long Term Bonds, Interest Rates, and Implications

Bonds and Rates 6-3-12

Long term US bonds are likely nearing an major top.  Technical analysis, pattern analysis, and CoT data are suggestive that this current rally may be the final leg up of this bull market.  Wait for daily chart technical divergence to develop before considering short entries.

Need Further Declines For Confirmation of a Top

Click on Chart to Enlarge

This post is just to update a few recent posts. The chart above is the Dow ($INDU). This continues to look like and behave like an ending diagonal pattern. One feature of this pattern that is often present is called a "throw-over" where the final push up spikes above the trendline of the prior highs in the formation. That happened yesterday and then today is one of the stronger down days of late providing some initial evidence that the ending diagonal hypothesis may be legit.

The problem with most simple pattern analysis is lack of definitive rules and logic in the form of "if-then" confirmations. So in this case, I would say...."IF the above pattern is an ending diagonal, THEN point 4 must be broken below in less time than 5 took to form AND the whole pattern must be retraced in less time than it took to form." So right now, we don't even have the initial confirmation of a break of point 4. But the sentiment and technical environment certainly support the possibility that this will occur.

On a separate note, the TLT trade gapped in our favor today. For those adept with technical indicators, you can exit if/when the RSI(5) becomes overbought. I don't have a really good gauge of how high this could go in the event this little rally builds legs. But I will either post an outright exit when that RSI gets overbought, or suggest holding and trailing a stop up under support.

Also, for US Dollar bulls, today looks like a real nice chance to get in with low risk. It looks like today will be a 2nd consecutive long-tailed reversal candlestick at the lower bollinger band. You could buy (UUP, EUO, short FXE, etc) with a stop a penny below the lows of today. But I am not posting a trade on this.