In The Same Place

Little has changed since the last post.  It looks very much like the market is in the later stages of its current rally, as the McClellan Oscillator remains below zero, and the Summation index continues to fall.  The equity only put call ratio has quickly moved back into overbought territory, which is another concern.  As we watch the likes of AAPL go parabolic, it can be hard to sit idly by, but I still believe that is the best course for now. A correction of 4 or more weeks is what we are waiting for now in order to have a low risk entry point.

At the same time the IWM looks like it wants to breakout, but if it does don't expect much follow-through since it is lagging.  A quick 2% to 4% pop may be all that can be expected.

Oil looks like it is ready to move higher again after testing support.  I am looking to go long the OIL with a target of around 30.

As a side note, I realize there are a lot of things on this blog that need to be updated including the layout and a number of links, but this is perhaps one of the busiest times in my life that I can remember with lots of changes going on - marriages, graduations, anniversaries, new jobs, and much more, so unfortunately, a much needed overall will have to wait until perhaps later this year.  Thanks for your patience and support.

I do appreciate the positive feedback that I get from time to time.  As much as I want to be able to offer some valuable insights, one benefit in writing this blog for me is that it keeps me grounded, and forces me to re-examine my perspectives before I take a position.  This has saved me more than a few times.  One perspective that has recently come to light is the view of the 2011 correction as an expanded flat, which I first proposed last year.  I now see that a number of other market analysts have adopted the same view.  The only problem is they are still seeing things through a bearish lens, and that is just not the place to be right now.

Patience Required

It is at times like these that a trader wonders if the only way to make money is to keep buying breakouts, but as surely as one gives in to that urge a significant reversal will occur.  It is only a matter of when.  Looking back at the initial rally from the 2009 low, we can see that the Qs pulled back to the 12 week ema several times providing new entry opportunities.  When that will happen now is anyone's guess, but it will happen.

Is It Time To Short WYNN

WYNN has completed a very clear upward double zigzag from its December low.  It is tempting to go short here.  The risk would be above the 3/2 high.  However, my past experience says this would not be a good choice.

While the daily chart shows a completed pattern, the weekly chart shows that WYNN is trading above its moving averages and the MACD has turned up.  It seems more likely that WYNN's upward correction could continue even if it is a corrective pattern.  If WYNN moves below the 2/14 low, the probability of success would be greater, assuming the broader market is also in decline at that time, so in my opinion it would be best to wait.

Ripe For A Selloff

While the selloff in equities seemed to be averted with a 3 day rally into the weekend, there are now several clearly negative divergences that have set up.  The MACD, MFI, RSI, and Volume are all indicating that the rally over the past 3 days will fail.  That doesn't mean we won't see a new high on Monday, but that new high may just be wave (b) of [iv].  If so, then wave (c) of a flat, expanded flat, or triangle should follow.  In the expanded flat scenario, the downside target is in the 1310 to 1320 zone.  If a flat is underway, then we may only see a retest of this week's low.  If it's a triangle, then more sideways trading is likely.  In all three cases, a 5th wave with a target of around 1450 should follow.

A sharp 3 day selloff would probably be a good time to exit any open short positions, particularly if the support zone is hit.  At that point the long side will be in play again.  While it is possible that a 5th wave is already underway, I am skeptical due to the negative divergences, and the fact that the summation index has continued to decline, and the McClellan Oscillator is still below zero.

One Way Or The Other

The NYSE McClellan Oscillator hit an oversold level on Tuesday.  There appears to be two cases following when this occurs.  In the first case, the oversold level marks the end of the pullback/correction, which is what happened in March of 2011.  In the second case, which is the more common outcome, the market continues lower after a bounce, and the McClellan Oscillator makes a higher low as occurred in May of 2011.  One clue as to which way it's going to go is the MACD of the NYMO.  If it remains below zero, then we probably have Case II.  If it moves back above zero, then we probably have case I.  We should know fairly soon.

The futures this morning seem to be screaming Case I, as in we should see new highs soon, but it's too early to tell.

How I Traded Solar Winds

More Evidence For A Top

The absolute breadth indicator has been quite reliable over the past few years at signaling tops and bottoms in the stock market with few false signals.  Extremes in the indicator point to significant imbalances between the number of new highs and new lows.  These imbalances tend to occur at market turning points.  Today the absolute breadth indicator reached a low level that has marked several prior tops and one bottom.

Several other breadth indicators have been signalling that a top is imminent as well including the McClellan Summation Index.  This doesn't mean that the top need be greater than minor degree, but a top is likely nonetheless.

Though there are few good setups, I am looking for shorting opportunities in stocks and a reversal in the E-mini futures.