04/30/2010 Market Recap: Weekly Bearish Engulfing Means Bullish Next Week, But…

TREND INDICATOR MOMENTUM INDICATOR COMMENT (Click link to see chart) Long-term 3 of 3 are BUY     Intermediate 2 of 3 are SELL 3 of 5 are NEUTRAL Non-Stop Model is in BUY mode Short-term 1 of 1 are SELL 6 of 6 are NEUTRAL SPY ST Model is in BUY mode

ATTENTION *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. 0.2.3 NYSE McClellan Oscillator: NYHGH new high could mean SPX new high ahead. BEARISH 0.1.1 SPX Intermediate-term Trading Signals: CPCE MA(10) too low. *0.2.2 Extreme Put Call Ratio Watch: CPCE MA(5) too low. CPCI too high, top? 4.0.4 Dow Theory: Averages Must Confirm: NYHILO too high. 4.1.0 S&P 500 Large Cap Index (Weekly): BPSPX too high. *04/20 Market Recap: Record high Climax Buying. *04/20 Market Recap: Weekly Bearish Engulfing could mean a top. CONCLUSION *0.0.2 Combined Intermediate-term Trading Signals, although the primary sell signal is not yelling yet, but sometimes NYSI and BPSPX sell signals did work, so be careful here.

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE. TRADING VEHICLE: SSO/SDS, UPRO/SPXU ST Model 04/29 L 1.5xATR(10) Be careful, don’t get too bullish, the uptrend is weakening. Reversal Bar     *Stopped out of long position with loss. NYMO Sell     Non-Stop     VIX MA ENV     *Stopped out of long position with loss. OTHER ETFs TREND TRADE COMMENT – *New update. Click BLUE to see chart if link is not provided. QQQQ UP   IWM UP   *Could be Bearish 1-2-3 formation breakdown, target $69.91. CHINA DOWN   EMERGING *?   Price overlap, so could be a failed bearish 1-2-3 formation, the trend is unclear. EUROPEAN DOWN   *Stick Sandwich, so more down? CANADA UP   *Lots negative divergence and I don’t like the BPTSX bearish crossover. BOND *?   *Breakout, the trend could be changed to up from down. EURO DOWN   *Black bar, so pullback? YEN DOWN     GOLD UP   4.3.0 streetTRACKS Gold Trust Shares (GLD Weekly): Head and Shoulders Bottom, target $129.99. Also there’s a small Head and Shoulders Bottom, target $121.96. OIL ? ENERGY UP   FINANCIALS *?   Price overlap, so could be a failed bearish 1-2-3 formation, the trend is unclear. REITS UP MATERIALS UP

*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: MONDAY AND FRIDAY ARE BULLISH

According to the Stock Trader’s Almanac:

1. First trading day in May, Dow up 9 of last 11.
2. Friday before Mother’s day, Dow up 9 of last 14.

The chart below is the May Seasonality (courtesy of sentimentrader) for SPX and NDX.

 

CYCLE ANALYSIS: THE NEXT IMPORTANT DATE IS 05/06

The next potential turn date is 05/06 (+-) which could either be a top or a bottom depending on how the market marches to that date. See 04/16 Market Recap for more details.

1.0.7 SPX Cycle Watch (Daily), there’re 2 cycle due date the next and next next week, 05/03 and 05/10, together with the above mentioned 05/06, my guess is that they could mean a cycle top. Yes, I’ve double checked to make sure I didn’t write it wrong, it is a cycle top. For reasons please refer to the intermediate-term session below.

 

INTERMEDIATE-TERM: EXPECT ROLLER COASTER AHEAD OR THE MARKET COULD BE TOPPED

Maintain the forecast for roller coaster ahead (see 04/26 Market Recap for more details). Upgrade the warning level today, as there’re good chances that an intermediate-term top is imminent. The “witness” is the weekly Bearish Engulfing pattern formed this week. The charts below highlighted in red ( only Bearish Engulfing formed at 10 week high are listed) since 1988, all SPY weekly Bearish Engulfing bars. Total 11 cases, only 2 cases the market kept going higher and higher thereafter. In another word, there’re 82% chances, the market has topped (or very close).

 

I think some of you may remember my “rule” for Bearish Engulfing: A Bearish Engulfing usually means bullish the next bar (in our case means bullish the next week), the chart below is the back test summary – sell short at Friday’s close, buy cover at the next Friday’s close, bears got only 36% chances.

 

If however hold until next next week, buy cover at the next next Friday’s close then bears got 82% chances. So the conclusion is bullish next week, but not so bull friendly after the next week.

 

Below is another reason for not very pleasant ahead. Climax Buying (where a stock makes a new 52 week high but then closes below the previous week’s close.) among SPX stocks reached a record high this week. See what happened after all those vertical lines. Again it doesn’t necessarily mean a red week the next week, but certainly a strong sign to at least raise a cautious flag.

 

SHORT-TERM: COULD SEE GREEN MONDAY BUT MORE PULLBACKS AHEAD

I mentioned 2 reasons for a green Monday in the Friday’s After Bell Quick Summary. Here’s the 3rd reason: 0.2.0 Volatility Index (Daily), VIX rose more 19% on Friday, from the back test summary below, buy at close sell at the next day’s close, bulls got 81% chances.

 

0.2.2 Extreme Put Call Ratio Watch, however on a little bit longer than the next Monday, here’s another top sign, see thick vertical red lines for what happened when CPCI closed above 2. At least it means a short-term top.