(Added at the close, Friday June 22nd, 2012: Decided to hold off. Nice rally today but want to see how things go Monday/Tuesday of next week. I really don’t see any reason to be bearish here but today’s low volume rally has all the markings of a dead-cat bounce.)
$NYMO pushed above its upper Bollinger band.
$NYSI rose by 83pts, when 70-80 is showing overbought.
$NYDNV dropped to 120, when 150 shows overbought.
Zweig Breadth Thrust rose to 61.53, when 60 is overboought.
4wk New High/Low Ratio rose to 91.23, when 90 is showing overbought.
All of the above should have been a warning to people who follow this site that the markets were setting up for a pause day on Wednesday and, with $NYMO rising above its upper BB, then maybe a pull back of one degree or another. The Fed BS news interfered with normal day-to-day market action so today the markets got back to business as usual and we got a fairly substantial market reaction to a short term overbought situation. The big question now is how long will the pull back last and how deep will the retrace go?
Today we got a couple of clues.
93% of today’s volume went into declining issues so this showing an oversold market.
$NYUPV dropped to 54, when below 80 shows extreme oversold.
$NYUD:$NYUPV dropped to -13.83, when -12 shows oversold.
$TRIN closed at 3.16, so again another indication of an oversold market.
$NYAD, the daily, dropped to -1899, when -2000 shows oversold, however, this is probably close enough.
$NYDNV rose to 805 when readings in the 700-900 range indicate an oversold market.
There are a couple of holdouts but this seems to be a factor of the extreme amounts of volatility we’ve been seeing for the last few weeks. One of these is the RSI on the $VIX 60min chart which managed to only get to 59 today. This suggests that we could see some more downside at the start of tomorrow’s session and if we do then watch for the RSI on the 60min chart to climb above 70 to signal a potential reversal, however since tomorrow is Friday it could be very risky entering a fresh long position that you’ll have to hold over the weekend.
I am watching SPY, QQQ, & IWM for a possible short term play on the long side. I’m not sure if I’m going to take the trade even though the 60min trading strategy suggests a bounce should start sometime within an hour or two of tomorrow’s open. It’s the weekend, among other things, that has me paranoid.
There is also this article showing that volume on $VIX futures hit an all-time high the other day. What do these whales know that neither you nor I know? Well, for one thing, those whales got long the $VIX futures in August 2011 just before a 79pt drop in the $SPX on August 8th. Got me spooked for sure.
Chart of SPY showing that the RSI has dipped below 30 and is prime for a bounce tomorrow at some point. Also note on the chart that I have added a 200EMA. (Edit: The 200EMA is the purplish colored EMA that is pointing to 133.48) This EMA should turn up to indicate a change in trend and you can see that it tried but is now back in limbo land. As long as that EMA is indecisive then trades should be small and profits taken when they occur and that’s the way I will play the market if I decide to go long. As I’ve said, though, I’m very undecided about this and am leaning toward just staying in cash and watching the fireworks from the cheap seats.
Be very careful. $SPX just gave back 7 days of gains in 6 1/2hours. The markets could take back another 7 days of gains tomorrow.
Stay on your toes. GL