Tuesday, March 30, 2010

The Boy Who Called Wolf

We've talked about a top so many times in the last few weeks that your eyes may be glazing over, but the fact is that a number of indications point to at least a short term pullback. The NYSE TRIN has been running low numbers showing excessive bullishness, the Absolute Breadth Index is now down to 18.03 - a level seen at several important turning points over the last two years, various measures of investor sentiment have reached extreme levels, and the McClellan Oscillator has only just turned back up to the zero line.

The McClellan Oscillator turned down early in March creating a negative divergence with price. This would normally be expected to lead to a selloff in markets as the Oscillator moves down to an oversold level. It hasn't got there yet, but it may be that it becomes oversold has market just treads water. If so, markets could be setting up for an explosive upward move without a correction.

It may be another 6 weeks before we can really decipher what the real pattern is, but it certainly looks as though we will see some selling early in April. If the overall behavior of this rally continues, it should be another buying opportunity.

Housekeeping Notes:

I haven't had time to stay on top of the System Tracker over the last month, so I will make an effort this week to take care of that. I need to post the rules clearly for each system above the results. I've fortunately had plenty of engineering work to do this year which has kept me busy.

That said, I will take a break from posting the rest of this week as my family is on spring break and I need a break too.

Happy Easter.

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