Thursday, May 16, 2013

Situational Awareness: FAIL

The sheer number of bullish money managers that are being interviewed by the financial media on a daily basis seems to have reached an apex.  Just like the unsuspecting woman in the picture above, the market is in a perilous situation.  While I have been very bearish (and wrong...for now) for the rise of the last 100+ SPX points, there is no doubt in my mind that the coming sell off will easily put short positions "in the money" on anything sold short at 1550 and higher. The big question is when, not if the market will correct lower. Considering the rare and strange readings throughout many volatility and breadth indicators that I review on a daily basis, I am left with only one conclusion. When the market breaks lower it will probably be unusually powerful and very similar to the moves lower in 2010 and 2011.  Perhaps, a combination will emerge, like some kind of mutant offspring . I believe this because I am seeing many of the same type of readings throughout a plethora of data that I review on a regular basis. However, for the sake of time, I will publish the charts that I think display the overhead resistance that the market has been steadily pushing up to.

DOW Monthly
Looking at just this chart, the market seems to be attempting a bullish breakout of the internal trendline that caused the selloff in the summer of 2011. However, the likelihood of a sustained move higher from the current levels is a longshot. The weekly chart of the Dow shows why.

Dow Weekly
Dow 60 min Closeup
Resistance, while it is rising, did provide some push back. However, because the channel lines are rising that does allow for the potential of some slightly higher highs over the coming days.

The final chart is of the SPX divided by the US Dollar index. While the market has been hitting new highs, this chart has not been in agreement. This divergence will be one of the catalysts that can be attributed to the coming plunge.


As of today, I don't think the intermediate term top will be formed until late May or the 1st week of June but I also don't think there is any upside past 1664-1670 on the SPX. Therefore, I expect volatility to increase over the coming days and we could see a couple moves down towards 1580 only to rebound back to 1650-1670 a few days later.

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