Everything that I do on this blog is 100% duplicatable and transferable. There are no secrets to the system I use. The breadth indicators that I follow and log on a daily basis tell a story and the thing is that the story repeats over and over again.
Perhaps some traders were surprised by the pull back in the markets that happened on Tuesday. Readers of this blog weren’t fooled, though you probably were a little surprised. But then, based on the gauges and ratios I follow, I thought we’d have another down day on Wednesday. But that didn’t happen. Based on numbers alone, I said that at minimum we’d have a pause day on Friday, and viola! there it was. Of course it wouldn’t take a genius to figure that the markets had climbed pretty high on Thursday and that a repeat on Friday wasn’t likely, but even so the numbers said to expect a pause, or worse, and so that’s what I posted Thursday evening.
You can do the very same thing that I do just by paying attention and by doing some back testing of things like $NYUPV or Zweig Breadth Thrust.
I keep all the charts that I use over at Charts-A-Pallooza. Just click on the Breadth Indicators tab. Lots of good links over there, too.
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This may come as a SHOCK to you, but it isn’t likely we’re going to see an encore rally in November that will take the $SPX up better than 13% and to the 1450 area. Don’t get me wrong. I’m not selling my longs, but I’m not adding to them right now, either. I think it’s mental-case unrealistic to expect the market to produce record gains two months in a row and so I’ll be looking at adding to current positions when a better opportunity comes along. In this market maybe there won’t be a better time to add to positions than right now as the $SPX just doesn’t want to come back for more than a day at a time. One thing for certain is that trees don’t grow to the sky and rallies don’t head to the moon in a straight line. At some point, whether that’s next week or the week after, there will be some profit taking leading to red days and maybe even a red week or two.
The weekly chart of the $SPX shows something of what I’m looking at as a potential scenario for November. When we came off the bottom in early September of 2010, the markets rallied hard into the first week of November and then the market consolidated for about three weeks forming a nice Bull Flag. Is it possible we’ll repeat such a course? Well, I don’t have a crystal ball so all I can say is that it’s possible, along with about 1000 other possible scenarios. What I think is that the Europe Debt rally has ended with the news that Europe isn’t going head long into a financial abyss which, of course, was never going to happen in the first place. Now that that’s out of the way, we’re left with earnings and economic reports and maybe that might not be the right kind of fuel to keep the rally moonbound without a couple of pit stops along the way. And, of course, I could be completely wrong.
Chart courtesy of StockCharts.com
GL in the week ahead.