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Wednesday, April 3, 2013

Daily update 4/3

The alternating pattern continued today, but this time there was serious volume on the downside.  Here is the SPX daily chart.

Something woke the bears up today I guess.  SPX closed below the 18 SMA on a volume surge.  The NYSE tick indicator showed a lot of selling pressure also.  By far the most selling pressure we have seen all year.  That 1538 level is key here.  A break of that would complete the double top pattern .

I think the breadth chart is pretty interesting. 

At yesterday's bull market high close for SPX and the Dow the McClellan oscillator was -62.  I am not sure I have ever seen a reading that negative at a bull market high. It is extremely rare to even be negative.  The 10 DMA breadth chart also has a negative crossover today.  Notice the 10 DMA volume has had a negative crossover already for 8 days.  I said last night "That alternating pattern in itself is a sign of distribution.  Add to that the defensive sectors leading on the upside and cyclical sectors starting to break down and this market is quacking like a top."  Based on today's action I would say a lot of other people noticed that behavior also.  We are highly likely to be starting the biggest pullback since the Nov. low.  We are probably starting the biggest pullback since the June low.  We are possibly seeing the end of the bull market from the 2009 low, but that is very hard to say at this point.  The short term price action and some market internals look that way.  However, there are some internals that are stronger then normal for a final high.  That very fact brings up a problem though.  People tend to hedge their longs more when the internals are weak and not so much when they are strong.  We have a crowded long trade, high margin debt and an atmosphere where everybody thinks the market cannot go down much because the FED is printing money.  I can see how the ingredients are there for a major crash.  I don't think I have ever seen a more complacent market.  I highly recommend people get defensive here.  Do some hedging or raise some cash.  Do not just stand there and get run over by the market.  If this market follows through on the down side there is no guarantee we will be back anywhere near these levels anytime soon.  We may have a pullback and a retest, but we may not.  I hope everybody has their bear market plan ready by now.

Will the alternating pattern persist tomorrow?  The ball is in the bulls court tonight.  What they do with it tomorrow is very important.  If they fumble the ball, look out below.


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