So some evidence to support theory that we were watching Stealth Distribution in the markets. Will need more confirmation and by this I mean that what started this past Thursday will need to continue for several more days and/or weeks, though probably not in a straight line. Back in April, the last instance of Stealth Distribution, the market rolled over, bounced very convincingly, put in a double top, and then the real sell-off began. A similar scenario may be getting ready to set up. However, earnings next week are doubtless going to throw a wrench into the works. If you look at a chart of AA you can see that expectations for their earnings are subdued and this opens the door to a possible earnings surprise to the upside which would then push the major indexes higher by default. Just have to wait and see.
60min chart of Q’s showing a parabolic move, which are never sustainable. 60min charts of IWM, SPY, DIA look about the same.
Chart of $SPX showing it moving within confines of rising price channel. The 5EMA was too far extended above the other EMA’s on this chart and now the 5 & 10EMA’s have begun to roll over. Price channel would be around 1340 for Monday but the parabolic move began with a low of 1330 so I think that is going to be an important level in the early days of the coming week. As long as $SPX does not bust through lower trend line, then this has to be taken as just an ordinary pull back to allow some of the recent excesses to be worked off.
After giving some climax buying signals, breadth indicators are now moving south and/or into neutral zones. Fer instance, $NYSI rose by 101pts on the 3rd, it’s highest one day point gain going back three years. This was a clear climax buying signal and a warning to traders. Now we are witnessing the reaction to an extreme overbought situation which I believe is going to take more than just an ordinary pull back to work off. But that’s just my opinion and the market will let us know in the fullness of time.
There are a lot of chartists out there right now putting all kinds of Nazca lines on charts and these lines supposedly will predict the movement of the markets over the near or medium term. Sometimes these chartists get it right, but mostly they don’t because they forget one important thing: Charts don’t make the market. The market makes the charts. And one more thing, a simple trend line is a traders best friend.
I still hold that the markets are not likely to bottom until late August or maybe September/October. This is a time for quick trades and then a return to the safety of cash. I like the view from the cheap seats for now and will watch for an opportunity on the long side to set up in the 60min charts for a quick trade lasting just a few days. In the mean time, cash is king.
GL & be careful.