29 January 2011
Market In Correction Mode ?
The S&P500, I usually use to view the broader market, closed on Friday under 1281 points. This is in my opinion is an important juncture as it reflects weakness.
In past 8 weeks I have pointed out that SPX needs to show a drop over 15 points and close before we can assume a potential change of trend.
The reason given was that since November rally we have not seen a daily decline over 15 points especially on a close. I also pointed out that Earnings Season is a good strategy to exit positions on a high note.
In my article dated 23 January 2010 I mentioned that the Nasdaq Composite is confirming weakness.
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In my article dated 25 January 2011, I pointed out the importance to monitor Emerging Markets.
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26th of January 2011, I explained my Portfolio Logic. Unfortunately, Lotion Boy did not separate the Market Musing from the Day Trade Articles, so it might be confusing. Just follow the header
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On 27th of January 2011 during trading hours, I made a remark in a chat with our buddy user Doogy and Rampage, that 1299 SPX is a good enough for me to buy Index Shorts. E.g. SDS, DXD,QID, TWM and EPV with a view of an intermediate correction ahead of us.
We shall see if it was the right decision in weeks to come.
The above articles were warning signs and actions to be taken. The question we are all asking is “ IS THE TOP IN PLACE”.
In order to determine it without jumping to early into a conclusion we shall view some data and charts below.
Nasdaq 100
The index showed weakness ahead of SPX and created a sell signal as 5 ema crossed 10 ema to the down side. The daily chart shows a kind of a double top, RSI below 50, MACD negative crossing and Stochastic pointing to the downside. With all these negative indicators on the daily, funny enough NDX closed + 0.10% on weekly basis.
The weekly chart has no sell signal !
(chart courtesy of stockcharts.com)
S&P 500
Having explained earlier how important a close of over 15 points is for a potential trend change is, we did receive a huge warning on Friday as the index plummeted 1.79%. The daily chart does point to a change in trend but has only an early sell signal. SPX closed on weekly basis -0.55%.
The weekly chart shows no sign of a sell signal and maintains a positive stance. One day of heavy selling does not justify to jump into an early conclusion. The SPX must drop below 1260 to confirm a down trend.
These are facts. I like to see the RSI drop below 50 before jumping into bearish mode.
(chart courtesy of stockcharts.com)
Dow Jones
In my Day Trading Article dated 28 January 2011, I pointed out that the Dow has not seen 9 consecutive weekly gains in past 10 years. After digging a bit, the last time that happened was 1995.
I expressed my bearishness for Friday trade and the fact that Dow needs to drop 120 points to close the week in minus to
avoid a record breaking attempt. This call was spot on and I benefited with some handsome paid shorts. The Dow closed the week with – 0.41%
The daily chart is similar to SPX and does not show a valid sell signal.
The Dow needs to go below 11600 break to confirm a change in trend.
(chart courtesy of stockcharts.com)
As we can see, all above 3 indices had not a real negative week to jump into a full blown bear. I giggle a bit seeing over excitement in the bearish camp. A conservative trading approach is - > await the real signal and do not trade on behalf of excitement.
Gold-GLD
Regarding my favorite sector, my early December 2010 given sell signal is still intact. It was a positive move on Friday, but as we do not want to jump into bearish mode on SPX yet, we also do not want to jump into full blown bullish mode on Gold just because we saw a handsome bounce on Friday. Gold is down 0.57% and the daily and weekly chart are still confirming a sell signal. I would like to see the 5ema cross the 10ema to upside first before I turn real bullish.
The American Gold Bugs – HUI has a very similar picture as GLD does, may be a tiny touch better. Having said this, I allocated on Thursday a tiny 2.5% long in PM stocks to test the water.
(charts courtesy of stockcharts.com)
GLD
HUI
SUMMARY:
In my previous articles I showed some price indicators flashing a sell and we received as a bonus a sharp sell off on Friday. Lets review the following indicators based on Friday’s closing.
NYSE Tick
McClellan
NDX Summation
Advance-Decline Market Breadth
Up/Down Volume Market Breadth
Dow Theory
For our Dow Theory lurkers, the Transport Index has broken the 50MA showing first sign of divergence to the late strength of the Dow Jones.
Summary:
Gold - > still has a valid sell signal
Silver -> still has a valid sell signal
HUI -> still has a valid sell signal
USD/EUR -> $ may bounce from here as it is short term oversold.
Stocks still outperforming bonds
Bonds signaled a valid bounce and I expect more gains
VIX jumped over 20% and is creating soon a buy signal VXX had some serious up volume!
Natural Gas has a valid intermediate buy signal
News Alert:
Unfortunately I have experienced the lack of comments for efforts made to write articles even so a lot of lurkers are viewing it. I am considering refraining from further articles
Legal note:
The article is intended solely for The Slippery Slope Investor Blog.
Any copying or distribution without the authors consent is prohibited.
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