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Sunday, February 8, 2009

02/06/2009 Market Recap: Innocent (Up) Until Proven Guilty (Big Gap Down)

Lots of intermediate-term buy signals in chart 0.0.0 Signal Watch and Daily Highlights, well, I don't argue with those signals. Just I'm not sure how high the market can go on the intermediate-term basis. Short-term, one thing is certain, a big pullback is a must in order to correct the extremely low CPC readings. As I've been saying that CPC lower than 0.8 means consecutive up in a few days until one day the market opens with big gap down. When is this (big gap down open) going to happen? I don't know, so innocent until proven guilty, bulls and bears, please wait until the market proven guilty. Until then, bears be prepared for the market to continuously go up, while bulls, don't be too greedy.


First, let's check the overall signals:

0.0.0 Signal Watch and Daily Highlights, lots of intermediate-term buy, not many short-term overbought yet, seems to favor bulls. Especially 7.0.6 Weekly STO and the Market Top/Bottom, once a buy signal signaled seldom a whipsaw it has, so as I said, I don't (or pretend not to) argue with signals.



Now, let me explain why I doubt how high the market can go:

1.1.4 Nasdaq 100 Index Intermediate-term Trading Signals, NDXA50R at bottom is way too high which is normally a sign of a top.


1.1.7 QQQQ Outperforms SPY Good Sign?, we all know that recently the QQQQ outperforms the SPY a lot. Is it a good sign?


2.8.1 CBOE Options Total Put/Call Ratio, normalized CPC is another sign of a top. Well, after check chart 8.1.2 Does extremely low CPC lead a market top?, you might have a second thought, but you still cannot rule out the possibility of being a top, can you?



OK, now the short-term speculation:

7.0.7 Extreme CPC Readings Watch, 80% chances Monday close green (except of course, a big gap down open).


0.0.4 SPX:CPCE, I've mentioned this setup before, hopefully this time bulls are lucky enough to get NYADV overbought before the sell off begins.


1.1.5 PowerShares QQQ Trust (QQQQ 30 min), STO and RSI testing resistance. 1.1.6 PowerShares QQQ Trust (QQQQ 15 min), lots of negative divergence. So QQQQ has good chance to pullback Monday morning. If it can again close green, bulls better take some profits.



3.4.1 United States Oil Fund, LP (USO Daily), nothing to do with my short-term speculation, just the down volume on Friday looks like a capitulation. If oil can go up, it's very good news for bulls.



  1. Regarding the question, "Does extremely low CPC lead a market top?", it looks like based on your chart, during a bull cycle it is less likely to signal a big move down -- more like trading sideways (a breather for the bull), but in a bear cycle, it always seems to indicate a big move down. That was my observation.

  2. Yes, correct. But the question is: Are you sure we're still in bear market. :-)

  3. Cobra:

    Is SPX on daily chart forming a small double bottom? I believe it broke above the major resistant trend on last Friday, but the volume wasn't impressive. Do you think that it will re-test the major trendline on Monday before rallying?

    So far, it has been making higher lows in the last 3-month. It doesn't look like November's low be tested again, does it?


  4. Cobra, sorry to bother you again. I have a general question regarding stock market cycle which I wonder if you could answer me.

    Utility sector has been outperforming other sectors for quite sometimes. According to John Murphy's website, this means we are in a middle bear stage. Does that mean there will be another strong pull back sometimes this year before we see market at bottom?

    I only have a year of trading experience and hence, I have no idea how reliable this stock market cycle going to play out.

    Thanks again.

    p.s. I started to trade (i.e. long on some stocks by using fundamental) at the market peak last year where my account almost blew up. Your technical analysis blogs have been guiding me to get back on track slowly. Thank you very much & I will continue to enjoy your blogs everyday.

  5. I don't think it's a double bottom. And I do believe there'll be a big pullback sometimes this year.

  6. hi YP! Great column regular reader. Answer to your question.."Are we still in a bear market" can bet the farm that we are still in a bear market. What out when deflation really takes hold of this market. SPX at sub-500??? Very much a possibility. Longest ever bull market is over and done with.

    That big down move should happen Monday morning.

  7. Thank you for adding 30-min charts for XLE, XLF and USO! We appreciate you acting on our request!

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  9. Hi Cobra, you said that low CPC means a few up days until one day the market opens with big gap down. Could you tell what usually happens after a big gap down? Decline from that point on or the up days continue before putting in a market top? Thanks, regular reader, great site..

  10. FYI, this is probably going to be one of those weeks in which there is so much fundamental news that a "pure chartist" perspective may trip you up.

  11. Hi, Austin,

    After big gap down, the market will generally continue to sell off for a few days. If after a few days sell off, no lower low on daily chart, then market could be up again, ortherwise the market is probably topped, we'll see another leg down.



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