Follow-Through

The Dow followed-through on its long squeeze signal today (the signal occured on Monday), which occurs when the 20 period 1.5SD Bollinger Bands expand from inside to outside the 20 period Keltner channels. The trend is determined observation or other indicators. This usually portends a strong extended trend. The Dow and SP-500 seemed to have taken over the reins from the Qs today. We may see some consolidation above the 200dema in the Qs as the first conservative target was almost hit today.

Options traders have pushed the P/C ratio down to levels seen at market tops, but I am not sure this means anything as there have been a couple of aborted P/C ratio sell signals since this rally began. One market analyst today noted that the SP-500 is only 10 to 15 points away from the uncle point for long-term and short-term shorts. If that level is hit, he expects massive short covering. While we could seem some violent swings in the near term, I am of the opinion that the risk of a short covering explosion is greater than the risk of a substantial correction. That being the case, it doesn't make since to sell without allowing for a short covering rally to develop. We may just be at the acceleration point for just such an event. The risk is that we do get a substantial correction and give back some of the gains earned in this rally. That is a risk I am willing to take as such opportunities are extremely rare.

My other main reason for not jumping off this rally just yet is the action in the financials, which are showing a very incomplete pattern. The BKX appears to be in wave iii of A of Y of a double zigzag. This means that waves iv and v of A, and waves B and C are still to come. It is unlikely that the rally in the broader indexes will end before the rally in the financials. The action today in BAC, WFC, JPM was very encouraging in this regard as well.

I do expect down days and pullbacks, but I don't think we are done yet.

We may be getting close to a second sell signal in the MACD for the Qs. This could be used as a signal to take partial profits in the Qs or NASD100 stocks should it occur.