We now have three instances where the market closed green with the $TRIN closing above 1.xx. Friday’s $TRIN close at 1.58 is disconcerting to me and is a warning that the Big Boys are in a quiet distribution phase. I have been following Stealth Distribution since I first spotted the correlation back in the late summer of 2009. In previous incidences, the Stealth Distribution takes place over 5-7 days with perhaps three such instances so this is the first time I’ve seen this happen three days in a row. Regardless of what this ultimately leads to, this is a red flag for now.
And just some quick notes:
Zweig Breadth Thrust rose to 60.20 on Friday so this is showing overbought and suggests a cooling off period for Monday, which goes along with the SPY 60min chart below. Also, $NYMO has, for the first time in several months, pushed up through it’s upper Bollinger Band. This has had very good predictive value in the past as an indicator of an overbought market but it has better value when it is joined by more than just a couple of other indicators so my guess here is that it is warning of a short term overbought situation rather than a overbought situation that would need several days/weeks to work off the overboughtness.
Meanwhile in another part of town, some of the breadth indicators that I follow are showing signs of improving market internals. Several weeks back we saw a shift in market dynamics where ‘buying the dip’ failed to bring about instant gratification for those who followed this strategy. If we were able to believe that this past week’s action was more than a dead cat bounce and short squeeze, then it would be easy to say that the ‘buy the dip’ dynamic has returned. But it’s only one week and even with the $SPX’s 25pt gain on the week, for the month this key index is still down 5pts so I’m just going to reserve judgment for now, but then I’m ten times more paranoid than you are, guaranteed.
One of the indicators that has turned is $NYSI which had positive ticks for the past three sessions, something it hasn’t done since it began to roll over in February. Unless the markets head straight into the abyss next week, then $NYSI could give a fresh ‘buy’ signal with the bullish X of short term MA’s by mid-week. $NYSI is hinting that the market’s bearish bias for the last several weeks is morphing into a bullish bias.
There are a couple of other indicators that have turned up over the past few days and confirm what is happening in $NYSI, like $NYHILO, $NYHGH, $USHL & $USHL5. These are, of course, just registering what we’re seeing in the market but at least they are not out of sync with the market.
This is all well and good but I think we need to see $BPSPX turn up before we get the Ya Ya’s out, if you catch my drift. That should/could happen early next week.
Chart of SPY in the 60min time frame:
Per the 60min trading strategy, SPY gave a sell signal on Friday when the RSI rose above 70. This sell signal would really just be for traders as there certainly is no ‘sell’ signal in the daily chart. That trend line is just way too steep so SPY will most likely have to test it before moving on. SPY can work off its current overboughtness through time or price. If the market is strong enough, then I would expect SPY to go sideways to slightly down on Monday and maybe into Tuesday. If what we saw this past week was little more than smoke & mirrors, then SPY is likely to blow through the trend line and head south. That is my trend line on the chart and is not necessarily ‘The” trend line, but that’s the one I’m going to be watching early next week.
The 60min charts of the Q’s, DIA, and IWM look about the same so let this chart serve as a proxy for them.
I’m still operating with the belief that the market has topped out and that we are going to see a clear roll over soon as “Sell in May” makes its presence known, but the market makes the calls and sets the course. If I’m wrong and the market decides to go higher, then so be it and off we go on a new rally leg. I just don’t see that happening. And even though I’m pretty bearish right now and have been mostly in cash for several weeks, the charts and breadth indicators are telling a different story. Along those lines, I have picked up a few shares of UPRO.
If you’re not paranoid, then you’re not paying attention.
GL in the week ahead.
P.S. If you have been following Ceridian’s Pulse of Commerce Index, then you wouldn’t have been surprised by Friday’s GDP #’s. Ceridian has changed the way they report so now you don’t have to wait until around the 12th of the month to get the data. Check their website on Thursday for their latest report.