10/13/2010 Market Recap: Expect a Short-term Pullback Soon

TREND MOMENTUM COMMENT Long-term 2 of 2 are BUY   Intermediate 3 of 3 are BUY 3 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode. Short-term Model is BUY 5 of 6 are NEUTRAL The trend is up but I hold no long position overnight. GANN DAY MOON:SOLAR CYCLE CONCLUSION 10/10-10/11 10/07 : 10/08 10/11 Next pivot date: 10/05 – 10/11

BULLISH 0.1.1 SPX Intermediate-term Trading Signals: Head and Shoulders Bottom breakout, target 1242. 09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months. 10/01 Market Recap: Positive September plus mid-term election means 11%+ up to year end. 10/05 Market Recap: 16 more trading days upswing? See 10/07 Market Recap, I have doubt now. 1.2.0 INDU Leads Market: mini SPX target 1173. BEARISH *1.0.6 SPY Unfilled Gaps: 20 unfilled gaps, the max is 20. 10/08 Market Recap: AAII bull ratio (4-week average) too bullish. 10/08 Market Recap: Commercial (smart money) short Nasdaq 100 heavily according to COT Report. 6.3.1b Major Accumulation Day Watch: 2 consecutive down days after MAD was a bad sign. Failed! 6.4.3a SPY Bearish Reversal Day Watch: Bearish Reversal Day, pullback? Failed! 10/08 Market Recap: Up off-season usually means down earning season. 10/08 Market Recap: Institutions are selling into strength. 6.1.9a Extreme ISEE Index Readings Watch: SPX will close below 1165 within 2 days? Failed! 6.2.3 VIX:VXV Trading Signals: Record low. 0.2.2 Extreme Put Call Ratio Watch: CPCI too high, topped? *6.2.2a VIX Trading Signals (BB): Short setup triggered on 10/13. *10/13 Market Recap: % SPX stocks above BB(50,1) is too high.

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE. TRADING PLATFORM: SSO/SDS, UPRO/SPXU Non-Stop 09/07 L N/A Partial profits on 09/24. ST Model 09/24 L Breakeven

SHORT-TERM: EXPECT PULLBACK SOON BUT IT MIGHT JUST BE A TEMPORARY TOP

The market is a little bit overbought, not enough for me to officially use overbought as the title though. Some old readers may remember that I don’t use overbought as the title easily because all the overbought signals I watch are not normal signals therefore they’re quite reliable (so don’t tell me overbought can be more overbought, just search my past record to see what happened when I officially used overbought as the title. The most recent time I used overbought as the title was in 07/26 Market Recap). The purpose I mention the potential overbought in advance today is to remind bulls, especially if the market can manage another up day tomorrow, better take some profits as a pullback shall be imminent. Of course, the pullback, if indeed, most likely is just a short-term pullback.

Now let’s take a look at some of my so called not normal overbought signals.

Percent of SPX stocks 1 std dev above MA(50), the signal was originated from Bespoke. See highlighted in red, they’re all very close to a short-term top while today’s reading is the highest among them.

 

T2112, NYSE percent of stocks 2 std dev above MA(40), the horizontal blue line is the all time high before year 2009 and now we’re very close.

 

T2122, NYSE 4-week New High/Low Ratio, this is my ultimate weapon for watching overbought, now is very close to an extreme level.

 

1.0.0 S&P 500 SPDRs (SPY 60 min), chart pattern wise, a huge Bearish Rising Wedge could be in the forming which is pretty reliable as both top and bottom trend lines are 3 points validated. Besides, a 3rd Rounding Top could be in the forming, which if indeed the 3rd time is the charm, since the previous 2 were bullish Rounding Top, so the 3rd one could be bearish.

 

6.2.2a VIX Trading Signals (BB), this is to follow up what I mentioned in 10/11 After Bell Quick Summary, the SPX short setup was triggered today. Please refer to 04/13 Market Recap for back test results.

 

INTERMEDIATE-TERM: BEARISH BIASED

Maintain the intermediate-term bearish view. Below are summaries of all the arguments I’ve been blah blah recently:

1. As mentioned in 10/08 Market Recap, commercial (smart money) holds record high short positions against Nasdaq 100.
2. As mentioned in 10/08 Market Recap, AAII bull ratio (4-week average) is way too bullish.
3. As mentioned in 10/08 Market Recap, institution selling keeps increasing.
4. As mentioned in 10/08 Market Recap, statistically, a strong off-season could mean a weaker earning season.

SEASONALITY: OCTOBER EXPIRATION MONAY WAS BULLISH, EXPIRATION DAY WAS BEARISH

According to Stock Trader’s Almanac:

1. Monday before October expiration, Dow up 24 of 29.
2. October expiration day, Dow down 4 straight and 5 of last 6.

For October Seasonality chart please refer to 10/01 Market Recap.

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST

	TREND	COMMENT
QQQQ	UP	4.1.1 Nasdaq 100 Index (Weekly): NDX to SPX ratio too high.
IWM	UP
CHINA		Confirmed breakout, very bullish.
EMERGING	UP	4.1.6 iShares MSCI Emerging Markets (EEM Weekly): EEM to SPX ratio too high.
CANADA	UP	TOADV MA(10) too high.
BOND	DOWN	*Hollow red bar, rebound?
EURO	UP
GOLD	UP
GDX	UP	4.3.1 Market Vectors Gold Miners (GDX Weekly): GDX to SPX ratio too high.
OIL	*UP
ENERGY	UP
FINANCIALS	UP	4.4.2 Financials Select Sector SPDR (XLF Weekly): Head and Shoulders Top in the forming? *3.4.0 Financials Select Sector SPDR (XLF Daily): Black bar under important resistance, pullback?
REITS	UP	4.4.3 Real Estate iShares (IYR Weekly): Home builder is lagging.
MATERIALS	UP

1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
2. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There’s no way for me to adapt to different risk levels therefore no specific buy/sell signals will be given in this report except the mechanical signals such as SPY ST Model.
3. * = New update.
4. Blue Text = Link to a chart in my public chart list.
5. LA = Lateral Trend.