So one week consolidation on the $SPX with it closing essentially flat. This has not been enough to allow breadth indicators to recycle lower so markets remain in an overbought state. $VIX bounced a little which pushed the RSI in the 60min time frame up to 50 at one point so $VIX is no longer oversold. $VIX never did trigger a ‘buy’ signal in the 60min time frame and is no where near generating a ‘buy’ signal in the daily time frame. $VIX remains locked in a bearish down trend in every time frame and what is bearish for the $VIX is bullish for the $SPX.
$NYSI weekly chart with a different stochastic set up. Look to the far left and notice that $NYSI pushed up to almost 1300 in early March of 2010. Just a few weeks later the markets fell off a cliff. When $NYSI hits 1200 it is considered overbought. Given that we are now just 150 ticks below that level and given that $NYSI rose by 239 ticks this past week, then, unless the markets fall off a cliff in the meantime, I think it’s safe to say that $NYSI could hit 1200 or higher in the coming week. If we get there, and I have no way of knowing if that will happen, it will be decision time for longs. But if $NYSI should rise to or above 1200 next week, it will only be because everyone knows the rally will last forever and froth-mouth bulls are buying without regard to price, a scenario that seems to never end well.
60min chart of SPY. It may be a little hard to see, but the 13EMA has not yet crossed down through the 34EMA, which would be a ‘sell’ signal in the 60min time frame. The 60min charts of IYT, IWM, QQQ, and even $SOX, look better than the chart of SPY. As long as most of the market leaders remain strong in the 60min time frame, then this strength will bleed over into the rest of the sectors, or so they say. The bottom line is that, while the 60min SPY/$SPX chart looks iffy, as long one or more other key sectors don’t start to exhibit weakness then $SPX should be bolsered by association.
Chart courtesy of FreeStockCharts.com
Weekly $SPX chart showing a Long Legged Doji for the week. This is a potential reversal candle. I realize that the resolution of this chart is not that great, but if you look for them you will find two other Long Legged Doji’s in up trends. One was in July of 2010 and two weeks later the market rolled over pretty hard. The other appeared in late October of 2010 and nothing much came of it. This certainly isn’t very conclusive. Only a close next week below this week’s low of 1306.06 would confirm this candles bearish implications.
Otherwise, the chart looks good especially since, after falling for nearly six months, the 26MA turned up slightly this week.
The markets remain overbought and until this overboughtness is worked off either through time or price, then participants remain at risk, IMHO. I will be watching next week for some kind of blow off event and until I get that then I will let a simple trend line be my guide.
GL in the week ahead.