Still, the market has been and remains overbought. $NYSI continues to roll over and there are signs of negative divergence in things like $NYHGH, which put in a strong showing early in the month but has since been unable to put in a higher high even though the markets have rocketed higher. $NYA50 & $NAA50 are in the same boat, as is $NAA50. $VIX closed at 16.80 today, its lowest close since July of last year, and could easily drop to 15.xx tomorrow. When the $VIX drops into the 15′s, you really do have to start worrying about getting caught in a pull back, but maybe this time it’s going to be different.

60min chart of IWM showing, though not very clearly, that the 13EMA crossed back up through the 34EMA while at the same time IWM bounced off the lower trend line and then closed above the upper trend line. Interesting that IWM closed today at the same price it closed at on February 16th.  A close above the previous swing high of 83.31 within the next few sessions would have to be seen as a bullish move.

This is my last post for a while. My wife and I have decided to start the moving process tomorrow instead of Saturday. I want to thank all of you, about 100 visitors a day, for stopping by. I also want to thank those of you who have ‘mentioned’ or ‘liked’ my posts over at StockTwits.

Good luck to us, one and all.

IYF/XLF got hammered today and had 13/34 Bearish X’s on their respective charts. This could just be a one day decline, but if not then add the financials to sectors under pressure.

IWM is breaking down. The 5EMA is a hare’s breath away from crossing down through the 10EMA on the daily charts, which would be a ‘sell’ signal per the 5/10 method. IWM has been flopping around and going nowhere since about the 3rd of the month. Back on the 10th, IWM got hammered and had a Bearish 13/34 X on its 60min chart, but then bounced back a few days later. Today, IWM had another Bearish 13/34 X on its 60min chart so it is possible that IWM will bounce either tomorrow or Friday; however, should IWM close below 81.00 before it bounces, then it is likely headed lower.

Chart courtesy of FreeStockCharts.com

The markets remain overbought and breadth, as gauged by the Summation Index, continues to deteriorate.  Today on the NYSE there was twice as much declining volume as advancing volume. A market just can not go higher with participation dwindling, IMHO, of course.

GL

IWM looks very weak and is very close to giving a fresh sell signal in the 60min time frame. This would be IWM’s second ‘sell’ signal in the 60min time frame in about the last two weeks of trading.

$SOX  Index looks about identical to IWM.

We now have three key sectors that are showing signs of weakness. Usually about the time weakness becomes obvious, the mad men at the helm move in and we’re off to the races, again. If the mad men don’t come to the rescue soon, then it’s probably because THEY are selling rather than buying, IMHO, of course.

I watch the $VIX:$VXV at times like these when the market is overbought. When this ratio drops down close to or below 0.80 it indicates an extremely bullish market environment that is often not sustainable.  But if you look at this ratio alone you will find times when an extremely low reading was apparently ignored by the market, which continued higher despite a high degree of bullishness. If you throw $NYSI into the mix, another picture emerges and it appears that together these two have greater predictive value.

On the chart below, which goes back to March of 2009, you will note that I have marked with a green vertical line all but one instance where $VIX:$VXV dropped to or below 0.82. The black line that is behind the red, ratio line, is $NYSI and what’s important is what happens to the $NYSI either just prior to or just after the green vertical line intersects it.

On the far left of the chart, January of 2010, $VIX:$VXV dropped to 0.82 while the $NYSI was still rising, but within just a few sessions, $NYSI and $SPX rolled over and dropped for approximately 3 weeks.  Next , in April 2010, you have another instance where $VIX:$VXV dropped to 0.82, this time the $NYSI had already begun to fall, and the markets would join in the fun a little while later.

On the far right side of the chart, you will see two vertical green lines, each marking when $VIX:$VXV dropped  below 0.82. After the first of these two extreme readings, $NYSI continued higher, but prior to the second extreme reading, which came in last Friday, $NYSI had already turned south, which continued today.

The blue vertical line marks what appears to be an anomaly because after a low $VIX:$VXV reading, the market rallied on. The key is, at least IMHO,  that just prior to the extreme low reading and the intersection of the blue line with $NYSI, $NYSI had turned north.

The bottom line is that if this chart has any predictive value at all, then it is predicting one of two possible market scenarios.  The first scenario would be an extended consolidation period like the one that began in mid-October of 2010 and lasted until the end of November. The second scenario would be a market decline of one degree or another.

Chart courtesy of StockCharts.com

And, of course, the chart above could turn out to be useless VooDoo. It all depends on AAPL.

GL

60min chart of SPY showing SPY trying to push back above the upper trend line and any kind of rally on Tuesday is likely to send SPY above that upper trend line.

Chart courtesy of FreeStockCharts.com

Daily chart of $SPX on which I’ve drawn in a new trend line.  The ADX is now just below 40 and is already showing overbought.

Going back to the 2009 lows, the ADX has only climbed to or above 35 on three previous occasions: August 2009, April 2010, and January 2011.

ADX hit 40 during the week of August 10th, 2009 and the market dropped about 35pts in two sessions almost immediately. Just prior to this decline, RSI had pushed up close to 80.

ADX hit 35 in the second week of April, 2010 and the market dropped 30pts immediately. This was just a few weeks before the beginning of the 2010 decline. RSI was a contributing factor in that decline, as it rose to 80 signaling that the market was extremely overbought.

ADX hit 35 on about  January 18th, 2011 and $SPX dropped about 15pts in the next session and would struggle for the rest of the month. On or about the 18th, the RSI rose to 80 once again showing an extremely overbought market.

Based on the above, ADX could peak at any time and begin to roll over while RSI may have already peaked.

$BPSPX has pushed to 84.60 and could very well be headed above 85, and then some. Zweig Breadth Thrust and 4wk New High/Low Ratio are both headed up but are currently in neutral territory so only a continued rally will push them back above overbought levels.  $VIX fell hard last week and could easily drop below 15 in the week ahead, at which point it would be extremely oversold.

Despite the fact that the market is overbought and that breadth is showing weakness, the market is not so overbought that it just can’t go higher without a pause of one degree or another. However, a continued rally next week is likely to push the market further into overbought territory and that means the odds of pull back will increase, but from what level I have no idea. Trees don’t grow to the sky and markets don’t rally forever but until there are clear signs of distribution then this market is headed higher.

Next week, I begin the process of moving and I will stop posting on a daily basis. The moving process will take the rest of February and isn’t likely to be complete until the middle of March, if then. Once the move is complete, it isn’t likely that I will resume posting on a daily basis, though I may try to put something up on the weekends. Over the next couple of months, I hope to finish work on a few other “Pages” that detail the use and parameters of the  indicators that I follow along with the various charts and methods that I use.

GL in the week ahead.

IMHO, the markets remain overbought and upside potential is limited. However, the market makes the decisions and if the market decides that it wants to go higher and higher despite what indicators are saying, then who am I to argue? Op/Ex tomorrow and then a three day holiday. If signs of distribution don’t become apparent by mid-week next week, then my call that the top is in is wrong.

60min chart of SPY. While I was absolutely certain that there would be a Bearish 13/34EMA X today, the market had other plans so, per the 60min trading strategy there is no ‘sell’ signal for SPY/$SPX.

Chart courtesy of FreeStockCharts.com

There’s an old saying on Wall Street that goes like this: It’s better to be out wishing you were in than to be in wishing you were out.

For the moment that is how I feel.

GL

Today’s key reversal caught many traders by surprise. I wasn’t one of them and if you’ve been reading this blog for the last month then you weren’t either. The dominoes have been lining up since January 18th and it was just a matter of time before they began to fall.

When the market tops, there are often two tops: the defacto top and the numerical top. I’m calling today the defacto top but it may not be the numerical top. The numerical top often comes in the form of a double top as froth-mouthed bulls are still operating under the belief that markets only and always go up.

Daily chart of the transportation index showing a break down of all the indicators. You may not be able to clearly see, but the 5EMA crossed down through the 10EMA today. Not only that, the 9EMA crossed down through the 20MA today, as well, so this is like a double whammy sell signal.

60min chart of $SPX showing that $SPX broke below and closed below the redrawn trend line that I’ve had on the other 60min charts I’ve put up recently. There was no Bearish X today of the 13EMA down through the 34EMA, but it’s less than one point away and should happen tomorrow.

Breadth indicators warned that they were getting stretched too far and now $NYSI, the big daddy of all breadth indicators, is rolling over. Thing is that when $NYSI changes direction, it usually isn’t for a a brief period of time but instead can move in its new direction for weeks or even months and this means downside risks for the market so you may be faced with a decision sometime in the near future.

I made my decision today and unloaded my remaining shares of UPRO.

GL

$NYSI with a second negative tick in the last three sessions as this indicator is slowly rolling over.

Advancing issues today numbered only 1100 while decliners numbered 1900. Without manipulation, there is no way that a market can close near the flat line with this kind of breadth.

IWM, $SOX, IYT, XLF & IYF are either ‘sells’ or very close to ‘sells’ per the 60min trading strategy as they have all had 13/34EMA Bearish X’s and, except in the case of IYT which has broken its trend line off the December lows, are very close to breaking trend lines.

$VIX, per the 60min trading strategy, remains a hold after flashing a ‘buy’ signal last Thursday. This usually would mean a ‘sell’ signal in the $SPX so sometime soon something’s gotta give. Either $VIX drops and negates its current ‘hold’ status, or $SPX drops and gives a sell signal. Based on what’s happening under the market hood, I’d say that it’s the $SPX that’s going to drop. But when?

$SOX, $NYA, & $TRAN are on the brink of getting ‘sell’ signals in their daily charts per the 5/10 method.

But for now, close doesn’t count.

60min chart of SPY showing how it is just barely hanging on to the trend line. If the mad men at the helm had not saved the market today, SPY/$SPX  would have given a sell signal in the 60min time frame. But, alas, THEY showed up just in the nick of time. However, after a nice rally on February 3rd, $SPX has just gone sideways while breadth indicators roll over. I don’t know how much longer the markets can hold up but until we see more overt signs of distribution then longs remain in the driver’s seat, IMHO.

Chart courtesy of FreeStockCharts.com

GL

60min chart of SPY showing how it has managed to avoid a 13/34 Bearish X and sell signal and how it continues to move within the confines of this slightly lower rising price channel. As long as SPY/$SPX  can avoid a sell signal in the 60min time frame, then there will be no sell signal in the daily time frame and bulls and longs remain in the driver’s seat.

Chart courtesy of FreeStockCharts.com

Transports rallied nicely today and have negated Friday’s sell signal as the 5EMA crossed back up through the 10EMA even though it wasn’t by much. IMHO, transports are now setting up for either a double top or perhaps a lower high. Time will tell.

Stay on your toes.

GL

IWM was down 1.37% Friday and 2.03% for the week. Still up better than 2% for the month.

$NYA lost 1.10% Friday.

$TRAN lost 1.04% Friday and 2.14% on the week.

I don’t necessarily follow Dow Theory but I do follow the transports as a market bellwether and I’ve been mentioning signs of weakness in this key index. On Friday, the 5EMA crossed down through the 10EMA, the -DI line crossed up through the +DI line, and both Sto’s that I use on this chart are in ‘sell’ mode. $TRAN could easily bounce on Monday, as that’s the way the market often goes, but it will probably be a dead cat bounce and then more of the downside action, IMHO. If $TRAN does not right itself early next week, then the weight of this key index will drag the market down right along with it.

$NYA, another important and very broad index, lost some ground Friday and I have found that $NYA can often signal turning points in the market by producing a much larger red candle than is produced by $SPX or $COMPQ. The red candle seems out of place and usually is followed by several rally days, but then the bottom falls out of the market as the big red candle was a shot across the bow not just an anomalous one day event.

The reason why my tone seems so dire is because of the huge overboughtness that has been in the market for nearly three weeks. A big red candle in $NYA any other time would cause me concern but I would expect dip buyers to rush the gates in the following session and then we’re off to the races again. Froth-mouthed dip buyers may well rush the gates Monday, but, IMHO, it won’t be long before they regret their actions.

$NYSI, the big daddy of all breadth indicators, produced a negative tick on Friday of -17.83pts. This indicates that the loss of momentum that has been showing up in this index has come out from behind the curtain as the selling, which is always going on as the markets rise, has gone from being covert to being overt. $NYSI is several days away from giving a sell signal, which would occur when the 5EMA crosses down through the 10EMA on this chart. By then there will probably be signs of distribution all over the place, if you catch my drift.

60min chart of SPY as a proxy for $SPX. Per the 60min trading strategy we do not have a valid ‘sell’ signal for the $SPX as SPY is holding above the lower, redrawn, trend line and there is no 13/34 Bearish X. It is very close. Should SPY drop below 134.00 and $SPX drop below 1340 on Monday, then that would doubtless trigger a legitimate ‘sell’ signal in the 60min time frame which could easily become a ‘sell’ signal in the daily chart of this key index.

Chart courtesy of FreeStockCharts.com

Daily chart of $SPX using the faster moving 5/10Method. You can see that while the 5EMA is still above the 10EMA they are both rolling over. The 5,3,3 Sto is flashing a sell signal but the 20/20 Sto still has a couple of days to go before it says it’s time to sell. BTW, I figured out what was wrong with Wilder’s so it is accurate now.

Bulls would take a look at this chart and say: “Ho, Hum. Seen it before. JBTFD.” And that’s a good thing because I am still holding a few shares of UPRO.

Weekly chart of $SPX showing my three preferred MA’s all moving up but there are red flags with the drop in the RSI and the bearish Sto X. Still the chart looks good though I do believe that is about to change.

Rallies don’t just end without a fight so I do expect that the market will move higher in the short term. The wild card, of course, will be news out of Europe and Greece. Even if we get good news and the market rallies early next week, it’s not going to change the fact that the market is very overbought and that the $NYSI is exhibiting weakness which the indexes can ignore for only so long.

Be Careful and GL in the week ahead.

$VIX has been moving up for the last two days and today got a ‘buy’ signal in the 60min time frame. But this has happened before and $VIX usually rolls on over the next day. Since $VIX has dropped as low at 16.10, intra-day,  this time just might be different.

$VIX chart showing what appears to be a Bear Flag. Since this flagging is occurring with $VIX in a down trend, then it has to be seen as a Bear Flag rather than the start of a new up trend for now.

Chart courtesy of FreeStockCharts.com

Daily chart of $SPX and, with the exception of the overbought RSI, there’s just nothing bad about this chart as $SPX slowly climbs a wall of worry.

$NYSI has been adding fewer and fewer issues each day so far this week. For several months it was common to see 40-50-60 issues added per day to this cumulative index. That began to change last week. $NYSI added just 16 issues today, down from yesterday’s 26. This is to be expected since $NYA was off by about 2pts today, but if this trend continues then it won’t be long before issues begin to get subtracted from $NYSI and then $NYSI will start to roll. $NYSI can be early and often is but at its current elevated level of 1343, when it rolls it will be time for longs to start thinking about locking in some, if not all, gains, IMHO, of course.

GL