Bears Are Soiling Themselves........Not Me.......Other Bears (I already soiled myself around 3pm ET today)

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Despite anti gravity action in the market I don't have much to say. There are any number of cliches or analogies I could say here, but the bottom line is 1) the market is always right, and 2) there is has been no exit signal yet for the latest trade so there's not much to do.

The top chart above is the end of day short-term model I use for trades. This reached the highest level in its history (since 2002) during the day today. Check the comments section of today's earlier post for some background on other occurrences. Basically the other instances occurred near (just prior to major tops) or on the first explosion out of a major bottom. We certainly aren't in the second scenario, so on those grounds I would say we are probably in the first scenario.

The second chart is a longer short-term model composed of some different data. Only limited history is visible on the chart, but same story....happens coming off major bottoms or near significant peaks. Other than this March, all other signals led to almost immediate significant pullbacks.

The bottom chart is intraday cumulative TICK for the NYSE. Again this is the highest it has been in months (highest visible on the chart). Corresponding major highs typically lead to immediate pullbacks, or a narrower range day, followed by larger pullbacks.

From historical backtesting of prior major strong breadth days like today (last 3 days really), there are some clear guidelines for tomorrow. Downside risk is significantly larger than upside potential. Any gap down is extremely likely to be filled during the day. Expectancy is lower than random, due to losers being much bigger than winners.

From my experience after days like today, I expect to see a narrow range type of day to digest things, then expect the market to give back some recent gains following over the next few days. The associative cortex of my brain is telling me that I last felt like this around Jan 5 of this year. While the market is certainly in a different spot right now, I wouldn't be surprised if these price levels are not seen again for many moons after this week.

Pete

SDS Trade Update

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The chart above is a screenshot of the short-term models I use from Sentimentrader.com for blog trades. The left side is the S&P model with the heading STEM.MR MODEL. The right side is the Nasdaq model. Also underneath the models are the cumulative intraday TICK for the NYSE and Nasdaq respectively. The cumulative TICK is the sum of the closing TICK values of the last thirteen 30-min periods.

Notice that as price has pushed into modest new highs on those indices since our entry on Thursday, both the short-term models and the TICK data are not reaching new highs. This is setting up a bearish divergence. Divergences work in this model in a similar way to traditional technical analysis.

With the long-weekend coming up, I would guess that tomorrow will be a lackluster mover, so there will probably be no potential exit until next week. There were a few subtle but notable happenenings from a charting perspective the last couple days in regards to recent down gaps being filled, and the high of the possible left shoulder being exceeded intraday on the S&P. This was followed with selling to bring prices back down a bit from those levels.

To sum up, I don't see much underlying strength in this move at these levels, and I doubt there is much upside left in it before a significant pullback occurs.


Pete