Saturday, June 30, 2012

Update (June 30, 2012 - still a bear market rally

Impressive rally on Friday but breadth was weak compared to the way prices advanced.

First, it was not a 90% up volume day. This is a clear sign of weakness given the huge gap up and the rise into the close.

Second, short term TRIN (a 3 day ema of TRIN) is underperforming and did not even reach the overbought level.

This weakness as the market rallies is not something that happened during the bull comebacks of 2010 and 2011, so this is still a bear rally.

Even if I think the market will head higher over the intermediate term, probably as the economy bounces a little, it is important to classify this rise as a bear rally as it will eventually offer a great opportunity to sell.

Friday, June 22, 2012

Update (June 22, 2012)

The way the market sold off yesterday is the mark of bear market rallies. 


Up to here, the bull has not been revived as in 2010 or 2011. 


Looking at other intermediate term bear market rallies, there are two possibilities from here:

1. a resumption of the uptrend after a little consolidation, similar to August 2007.


2. some range trading and maybe a retest of the 1250 lows, similar to February-March 2008

 
It can only be a guess which scenario would play out. There is compelling evidence for both of them. I will only point out that, in the past, scenario number 1 has mostly been the rule, while scenario number 2 has been the exception.

Friday, June 15, 2012

Update (June 15, 2012)

The growth rate for retail sales is decelerating towards the lower boundary but it is just half-way through.


The market rallies many times advance of the turn in the series but it has to reach closer to the "oversold" level.

Meanwhile, the market fell after gaping up on Monday but it never really came to the sellers, so I expect to see another dive next week, maybe even before the Fed meeting. 

I think that a break above 1342 (September contract) is a nice point to sell for a drop to 1300.

This would be a trade taken against the 1332.75 resistance on the monthly chart (monthly levels are usually broken by 10-15 points before the market reverses).




Thursday, June 7, 2012

Bear-market rally

The market is bouncing off monthly support. Although it did not look set for a bounce at the bottom, yesterday's rally strongly invalidates the possibility of another fall to new lows over the short term.

Since, by my measures, this is a bear-market, I am calling this a bear-market rally. These rallies can go on for a few months and pull back more than everyone expects - in the autumn of 2007 the market made new highs on the first bear-market rally.

The way up is punctuated however by strong sell-offs. I looked at previous cases and the first such sell-off will most probably come after a break above the important level highlighted by blue segment below.


This, especially as the behavior of the total put/call ratio suggests there still are many stubborn shorts that got caught wrong footed and have not bailed out yet. The ratio has spiked towards oversold yesterday despite the huge rally (the scale is inverted below).


Friday, June 1, 2012

What's next



The slowdown in employment has already taken place as projected. What happens next?


Probably some short term "bounce" in economic activity. Here is a leading indicator:



But, first, a drop in retail sales pace of change too.