06/15/2011 Market Outlook (Law of Inertia)

SHORT-TERM: COULD SEE MORE SELLING AHEAD

Most likely the selling isn’t over yet, the argument is, we’re on Earth (although QE2 almost convinced me that I was back to Mars) where everything has to conform the law of inertia. See chart below, the magnitude of the previous 2 down swings were much smaller than that of current one, yet both were 2 legged down, therefore chances are remote that this time we’d have just one leg down. So rebound tomorrow, if any, I think it’s a sell opportunity.

Some readers are asking the rule about huge rebound after 3 Major Distribution Days. I think although a huge rebound is just a matter of time, but the 3 Major Distribution Day rule may not apply here, because it’s hard to say whether the rebound yesterday was the anticipated huge rebound (after 2 Major Distribution Days) and to make things worse, if it counts as the huge rebound then today’s Major Distribution Day should be counted as the very first Major Distribution Day therefore theoretically there could be the 2nd one next (before any meaningful rebound).

Another bottom sign some may mention today is SPY volume surge. Unfortunately, the volume is not large enough, neither it’s confirmed by the volume of SPX.

INTERMEDIATE-TERM: STATISTICALLY BEARISH FOR THE NEXT 2 WEEKS

See 06/03 Market Outlook for more details.

SEASONALITY: BEARISH MONDAY AND FRIDAY

According to Stock Trader’s Almanac:

1. Monday of Triple Witching Week, Down down 8 of last 13.
2. June Triple Witching Day, Dow down 7 of last 12, average loss 0.5%.

Also see 06/01 Market Outlook for June day to day seasonality.

ACTIVE BULLISH SIGNALS:

• 8.1.5 Normalized CPCE: Too high, so bottomed?

ACTIVE BEARISH SIGNALS:

• N/A

ACTIVE BULLISH OUTLOOKS:

• 09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
• 06/10 Market Outlook: 75% to 81% chances a green next week.

ACTIVE BEARISH OUTLOOKS:

• 06/03 Market Outlook: IWM weekly Bearish Engulfing and SPY down 5 consecutive weeks were bearish for the next 3 weeks.
• 06/08 Market Outlook: The very first rebound most likely will fail.
• 06/10 Market Outlook: 83% chances a lower low the next week.

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST: 

TREND COMMENT SPY & Weekly DOWN Clear breakdown, target March lows as well as MA(200). QQQ & Weekly DOWN   IWM & Weekly DOWN Head and Shoulders Top breakdown, target $74.57. SSEC & Weekly DOWN Hammer on retest of the previous low, so may be bottomed? EEM & Weekly DOWN   XIU & Weekly DOWN Double Top breakdown, target $17.69. TOADV MA(10) oversold though. DAX & Weekly DOWN TLT & Weekly UP   UUP & Weekly DOWN Breakout down trend line then kiss the trend line good-bye? GLD & Weekly UP   USO & Weekly DOWN   XLE & Weekly DOWN Could be a Complex Head and Shoulders Top in the forming. XLF & Weekly DOWN   IYR & Weekly DOWN Double Top breakdown, target $57.34. XLB & Weekly DOWN

* = New update; Blue Text = Link to a chart in my public chart list. UP = Intermediate-term uptrend. Set when weekly buy signal is triggered. DOWN = Intermediate-term downtrend. Set when weekly sell signal is triggered.