04/16/2010 Market Recap: Key Day Monday

TREND INDICATOR MOMENTUM INDICATOR COMMENT (Click link to see chart) Long-term 3 of 3 are BUY     Intermediate 3 of 3 are BUY 4 of 6 are OVERBOUGHT Non-Stop Model is in BUY mode Short-term 1 of 1 are BUY 5 of 6 are NEUTRAL SPY ST Model is in BUY mode

ATTENTION 0.2.3 NYSE McClellan Oscillator: Negative divergence. *1.0.6 SPY Unfilled Gaps: 16 unfilled up gaps. (max was 18) *0.1.1 SPX Intermediate-term Trading Signals: Could be an Ascending Broadening Wedge in the forming. BULLISH 4.1.0 S&P 500 Large Cap Index (Weekly): Head and Shoulders Bottom, target 1246. BEARISH 0.1.1 SPX Intermediate-term Trading Signals: CPCE and CPC MA(10) too low. 4.0.4 Dow Theory: Averages Must Confirm: NYHILO too high. 4.1.0 S&P 500 Large Cap Index (Weekly): BPSPX too high. 0.2.2 Extreme Put Call Ratio Watch: CPCE and CPC MA(5) too low. 8.1.5 Normalized CPCE: New record low. 04/14 Market Recap: Smart/dumb confidence spread at sentimentrader is too large. 04/14 Market Recap: Too many bearish extreme signals at sentimentrader. 04/14 Market Recap: Intermediate-term Indicator Score at sentimentrader is too high. *0.0.2 Combined Intermediate-term Trading Signals: CPCE broke the trend line, so top confirmed? CONCLUSION No technical damage, the uptrend is intact. Although there’re too many bearish signals but according to the past Major Distribution Day pattern, there’re good chances that the market was bottomed. So need see what the market will do the next Monday.

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE. TRADING VEHICLE: SSO/SDS, UPRO/SPXU ST Model 02/26 L *04/08 low *Adjust stop loss. Reversal Bar   NYMO Sell     Non-Stop     Newly added setup, will give signal on this setup the next time it’s triggered. OTHER ETFs TREND TRADE COMMENT – *New update. Click BLUE to see chart if link is not provided. QQQQ UP   4.1.1 Nasdaq 100 Index (Weekly): BPNDX too high. IWM UP     CHINA ?     EMERGING UP     CANADA UP   4.1.5 iShares CDN S&P/TSX 60 Index Fund (XIU.TO Weekly): BPTSX is too high. BOND DOWN   DOLLAR UP Head and Shoulders Bottom, target $24.28. Morning Star plus ChiOsc a little low, could rebound further. *4.2.1 US Dollar Index Bullish Fund (UUP Weekly): Hollow red bar, rebound? GOLD UP   GDX UP   Ascending Triangle, target $54.2. OIL UP ENERGY UP   FINANCIALS UP   REITS UP MATERIALS UP   4.4.4 Materials Select Sector SPDR (XLB Weekly): BPMATE too high.

*Please make sure you understand how to use the table above. The main purpose of this report is to provide information so contradictory signals are always presented.

SEASONALITY: NO UPDATE 

CYCLE ANALYSIS: THE NEXT IMPORTANT DATE IS 04/20

From the Gann Day table below, looks like the next important date is 04/20 and the 05/06 is the next, because not only multiple historical Gann Days  are clustered together but also they’re important date according to the solar term as per the Gann theory, market is likely to turn on those solar term date. The question is whether the market drops to 04/20 (+-) then rises to 05/06 (+-) or rises to 04/20 (+-) then drops to 05/06 (+-)? I have no idea for now although as mentioned in the Friday’s After Bell Quick Summary, the next Monday is more likely an up day therefore accordingly the market may rise to 04/20 (+-) first.

 

INTERMEDIATE-TERM: EXPECT ROLLER COASTER AHEAD

Maintain the forecast for Roller Coaster ahead for 3 reasons:

1. According to the II Survey, too many people expected a correction, so the stock market should rise to a new high first before actually pulling back (See 03/19 Market Recap for more details). Since we’ve seen the new high so now it’s the pullback’s turn.
2. Statistically when the market has been up, especially at a 52 week high, entering the earnings season, the average performance during earnings season is usually not good (See 04/09 Market Recap for more details).
3. 6.1.0 Extreme CPCE Readings Watch, take a look at how the market behave when CPCE was extremely low. I expect no difference this time (choppy ahead like past) especially when there’re simply so many bearish extremes accumulated in the table above.

SHORT-TERM: MIXED SIGNALS WILL HAVE TO SEE HOW MARKET BEHAVES ON THE NEXT MONDAY

Since the Friday is a so called Major Distribution Day (NYSE Declining Volume to Advancing Volume ratio > 9), let’s take a look at what happened since the March 2009 rally when a Major Distribution Day was formed. From the chart below, looks to me, in most cases a Major Distribution Day meant a BOTTOM. The only exception was June 2009, the market kept selling off the day after the Major Distribution Day. So whether the Friday’s sell off is just an accident or a beginning of a little bigger pullback, will have to see how the market behaves on the next Monday. Monday green or small red, then very likely the 04/15 high will be tested while a big red Monday may mean more pullbacks ahead.

 

The bottom line, although as mentioned in the Friday’s After Bell Quick Summary, the next Monday is more likely a green Monday, however because there’re simply too many bearish extremes (see table above), so even the market could rebound to a new high, it eventually will have to pullback to fix all those bearish extremes, sooner or later. Take a look at 0.0.2 Combined Intermediate-term Trading Signals, the 3 points validated trend line was broken which is a very reliable top signal for the past few years.

 

STOCK SCREENER:  For fun only, I may not actually trade the screeners. Since SPY ST Model is in BUY mode, only LONG candidates are listed. For back test details as well as how to confirm the entry and set stop loss please read HERE. Please make sure you understand the basic risk management HERE.

Looks like it’s too late to long stocks now as the market is way too overbought. Waiting for a better chance.