According to Worden Bros. TC2000..... 93% of all stocks are above their 200day moving avg. This is the highest ever given the data is from 1987. The highest before was around 88%. I think this is a major top signal. The market is due for a serious correction. I am betting on atleast 10% or some type of pullback to the 50day MA on the major indices. On top of that.. the 10day ADX for the dow was 70 and the NDX is 50. As far as my swing trading goes.. I am heavily short the market indices. I usually dont pick tops .. its not my style... but this is just too tempting. I think its just as good a bet as any. --MIKE
I think patience is the key and required here for short plays...looking back at a 3 yr weekly chart on the S&P looking back at the rsi it seemed to hit a bottom of 30 during the steep selloffs, now the rsi is at 70 and my guess is if it does go higher there is just not much further to go. Seems that the risk/reward profile for return on the long side just isn't there over next week or two, not to mention we have had 7 up weeks in a row not including this week. Seems that everybody and their dog is long right now. Just feels that a precipitous drop is near if not imminent.
Friday's decline meant nothing, technically. The breadth was flat, and the 21-Day RSI made a new high last week, which is not indicative of a top at all. If the Dec. S&P gets above 1133, it can make a very quick run to 1161 before you get to a 50% retracement of the markets decline off the 2000 Peak. Moreover, there is not a major high on the charts until the March 2000 high at 1174. Before you try picking the top (which is what anyone would be doing if they went short here because there are NO divergences)just think what could happen ifthe DOLLAR WERE TO STOP GOING DOWN AND ACTUALLY GO THRU A PRETTY DRAMATIC SHORT-COVERING BOUNCE, with the sentiment that perhaps the dollar may have bottomed? Can you say MOONSHOT? That's how you get your 1177. Don't even get me started with the 61.8% retracement from the S&P 2000 Top . . . Cause that will get you another 100 handles North of here! If you are gonna trade against the trend, do not bet the Ranch. Unless of course you want to become another statistic.
So what? This isn't necessarily a prelude to a correction. The market can just as easily run flat for a few weeks and reset the MAs. You can add this to all the ET posts over the past 90 days with theories of an impending correction. A humerous collection building up. Have you all not learned by now that trying to predict the overall market is complete futility? And actually TRADING on those predictions is just plain stupid.
It will take much longer to reset those MA's than just a few weeks. My point is the market is dangerously at unprecedented levels. I am not predicting an exact price move on the market.. I am just stating cold hard facts.. and making a trade based on these facts... just as good as any other trade. --MIKE
I think there may be a flaw in this line of reasoning. We are coming out of one of the worst bear markets in history. The data on percentage of stocks above 200 day average does not include similar bear market periods, ie 1974 and 1927. It may well be normal for the percentages to run incredibly high for months during the first recovery. I agree that the averages appear extended and ripe for a pullback, but that doesn't mean we have to get one. Momentum typically peaks before price and that has not happened yet.
Actually, you're just as likely to be making the trade based not on the facts but on your feelings about those facts. You could easily find other facts to support a long position. Perhaps you should look at whether or not you have a pre-existing bias and are looking for confirmation of what you already believe to be true.
Please explain how the dollar RISING would pop the market? The devaluing dollar has been the major impetous for this climb. Ater 13 successive rate cuts failed to jumpstart this flagging economy, they moved to "non-traditional" means of devaluing the dollar to provide the fuel for a rebound. The lower dollar will boost corporate profits (since world wide top-line growth has yet to materialize), in addition to historically low interest rates, and also begin to eat away at an enormous current account defecit. The market climb offsets the devaluing US dollar assets held by foriegn nations, namely Japan and China and encourages them to hold these assets. As long as the market continues up, there will be no run on the dollar. I do not think Bush wants the dollar so low (or lower) going tinto an election. I expect a short covering rally, perhaps even a short squeeze, on the dollar in Q2 of this year. The over-heated markets will retrace to palatable levels, and the dollar will stabilize going into the election. The person who has "bet the farm" on this is bush and AG. Just my .02.
Yes.. my trade is also based on pure gut and trader's feeling. Its a discretionary swing trade.. not based on mechanics. Technically... the market is trading in the upper portion of its uptrend channel and I believe its ripe for a pulllback. Of course I could be totally wrong and the market can just rally another %10 from here.. I am willing to accepts this reality... but based on the data available to me... I am willing to bet that in the near term we head low enough to make me some $. --MIKE
I don't think we're at a top yet, but I think the recent bear market wasn't that bad when you really think about it. Many stocks are now back at all-time highs. The bear market primarily affected tech and large caps. As I've mentioned before on ET, the SmallCap 600 index, MidCap 400 index AND an equal-weight index of the S&P 500 are all at all-time highs.