Overbought On Light Volume

The McClellan Oscillator has reached an extreme level and the market is vulnerable for a pullback after this rally on light volume.  However, the first day of September is typically a strong day, so any pullback may begin Friday or next week.  If the market manages to consolidate in a sideways pattern, then expect much higher prices.

When the M.O. reaches this extreme, it usually means that at least a retest of the high will be seen after a pullback if not higher prices.  It may be prudent to lighten up on short term longs tomorrow or Friday, but it may be too early to think about shorting.

What's Up (Or Down) With The Dollar?

Becoming Overbought

While the market is becoming overbought in the short term, it appears that a move back to resistance at the March and June lows will be seen before the rally loses steam.  However, this process could take several more days.

The McClellan Oscillator has reached overbought levels, but the market can work its way higher as the Oscillator falls.  Other measures have room to move such as the RSI, etc.  So, although we may see a pause or down day, higher prices are still expected near term.

Big Picture Points Up Near Term

The elliott wave pundits would have us believe that we are now near the beginning of a major market crash in primary wave 3 down to new lows, possibly at unimaginable levels for most people.  But the monthly chart of the SP500 does not suggests that such a conclusion can be made at the present time.

Below I am showing the SP500 on a monthly chart with 12 (1.5SD) and 50 (2.5 & 5.0 SD) period keltner channels.  All that has happened up to his point is the market has pulled back to the 50 month ma, and the 12x1.5SD keltner channel.  Looking back at previous instances over the past 10 years, it would seem that at a minimum, the most likely next move is a return to the 12 month ma around 1250 before before there is any more downside.  After the retracement, the question will be:  is this period more like 2001 and 2008, or more like 2004.  The guideline of alternation would suggests it will probably be more like 2004, but perhaps with a different look.  At the moment, the decline appears to be following the pattern of 2007-2008, but that similarity could break down at any time.

Terry Laundry has a calculated short term low around October 3rd.  I think the current retracement will make it back to the 1250 zone by early to mid-September followed by a decline into the October 3rd low, which may or may not retest the August 9 low.  In my opinion, I think the market is currently in wave (X) of [X], and wave (X) could extend well into 2012 before wave (Y) down begins.  This choppy action will make it difficult for everyone, but if this is the case, it would be prudent to temper any expectations of huge gains on the short side, as were possible in 2008.  Following market swings with reduced profit targets for the next several months may be the best course of action.

MA Forms A Triangle

Mastercard, MA, is trading above its July high and appears to have formed a wide and loose symmetrical triangle.  Today's action in the markets points to higher prices and a breakout of the triangle targets 360+.  However, triangles always precede the last motive wave at a given degree of trend, so if you choose to trade this one be ready to exit quickly.  The short duration of this triangle suggests a thrust higher would only last 4 to 6 days.

Summation Index Points To Higher Prices

The MACD of the NYSE Summation Index does a pretty good job of confirming new uptrends.  The MACD has now turned positive as of today.  The signal is usually a little late, and in late 2008 and mid 2010 there was a lower low after the first signal.  Even so, it is more likely than not that higher prices will be seen near term.  The sell signals tend to be too late to be useful.

As a side note IBD has called the market in an uptrend as of the close on 8/23.  Not all follow-throughs work, and there are very few leading stocks setting up to launch new uptrends, so this follow-through should probably be taken with some skepticism,  i.e. be prepared to exit any new longs quickly.

AAPL closed off of its low today after the Jobs news.  I suspect we can gauge the market's trend by another sell signal in AAPL.  It looks like AAPL is working on a b wave triangle in an abc rally that may approach the previous high around 400 to form a double top.

No True Retest

To come so close to an actual retest of the 8/9 low, but not actual do it creates doubt about today's rally. The Qs have clearly completed a flat correction from the 2/18 high, but the pattern in the other indexes was not completed.  This divergence indicates that more corrective action will most likely be seen in September and October.

Assuming today's rally is not completely wiped out tomorrow, the upside target is somewhere between 55 and 56 for wave C of (X).  I suspect that wave (X) may extend into a double zigzag to make things more complicated.  If that happens we will see a high in early September, a wave B or X of (X) low in early October and then another rally to complete wave (X) into early December.  The exact pattern cannot be known without more information, but the point is not to get drawn into potentially false rallies until there is more certainty.

If the Qs make it into the 55 to 56 zone (at a minimum above the recent swing high), I will be looking for shorting opportunities.

Swing longs at this point may feel like a good bet, but probably aren't.  Even so, I tried to catch the breakout in HANS today, but did not get filled.  Somehow intraday, it jumped over my stop limit price.  I am not going to go after it now or on a pullback - it's just too risky.  That's the way it goes sometimes.