Short Term Alert: Sell signal if more downside

For the short term, with Friday sell-off and today's current weakness should very likely give a sell signal. With the very strong rally coming off from February to early April, which based on breadth-wise comparative to internal strengths witnessed in April and August of 2009...these types of rally usually hinted continued strength forward to 6 and 12 months later. That's been the case for the first 2 scenarios. So even though we could be in for a short term weakness (or worst case a medium term correction of over +5% to 10%) which could be similar to the January correction, but 6 to 12 months forward the market should likely be higher or near current price levels.

Amazing rally with caution

The stock market is having an amazing run-up this month with rarely ANY BRIEF pause. The breadth readings (advancing stocks vs. declining stocks) during the streak are similar to past bull markets of the underlying "internal" strength and could apply here again (as was the case in spring and summer of 2009) of continuation in higher stock prices 6 and 12 months from today.



But there is hints of negative divergence even though the major indexes are making new highs such as the Nasdaq, SP500, Russell 2000 (RUT). The above chart shows the Nasdaq rallying above the January 2010 highs. Thus far there are several other indexes such as the semiconductors, China Xinhua, hardware, internet, and Russell 1000 technology that are still below or at their Jaunuary 2010 highs. Unless they rally above their recent highs soon then this negative divergence could hint at least short term weakness if not medium term weakness.







So is this hint of negative divergence significant? This is the most significant divergence since a year ago when all the major indexes were making a new low in March 2009 (lower than their November 2008 lows) while the semiconductor, China Xinhua, hardware, internet and Russell 1000 technology indexes did not but instead made higher lows. Compare the charts above for the lows of November 2008 and March 2009. This was a significant positive divergence which resulted in the bear market low made in March 2009 and start of this current new bull market.

Short Term Alert: Mixed feelings

Part of my gut feeling says this is the top...but another part says maybe after the monthly job employment report on Friday. Two events I usually don't like to hold big positions the day before...options expiration (usually the 3rd Friday of the month) and the job employment report (usually the 1st Friday of the month.) As in this case, I have no position and if I do plan to trade tomorrow it'll be a small trade.

Short Term Alert: bullish pattern good for now

Last Thursday's rebound from an early morning big sell-off had a potential of a bullish pattern developing from several major indexes (like the FXI (China) and GLD (gold) indexes.) Should had posted this earlier but waited too late until Monday, yesterday's big rally for confirmation. The confirmation means there should follow-through upside for the remainder of this week. But like the February 9th post where another new low developed into a more constructive rally...this time around another new high could developed into a more constructive selling as early as next week.

Revisiting the short term alert

The stock market have already started to turn down since my last post. I noted one of the two scenarios I see developing was a brief short term move down before another move higher. So the stock market could get one more push higher back around the highs of last Friday and yesterday Monday. From there a more aggressive selling should lead to a push toward or below the recent lows of this current medium term down trend.

The other scenario has a more weak view as the stock market should continue to move lower from current price levels. Whether which scenario it'll be, better to had all of your selling done already or very soon.

Short Term Alert: Near or at sell signal

Will be a quick message here as I've been a bit busy. Stock market did continued to move higher as I anticipated from my last post. But we are now reaching price levels where I consider to be at or near a short term top. If it is then there are two scenarios I see developing... 1) a brief short term move down before another move higher... 2) a bigger move down that could break below the recent lows set in early February. I'll update more later as I see any new development. Another note, my medium term forecast continues to be the view of further weakness for the 1st half of 2010.

Short Term Alert: Overbought but still more upside?

With today's rally the stock market is reaching what is technically short term overbought levels. But there is hints of potentially more upside due to the oversold nature from last few weeks. That's the positive story I'm reading here. To counter, the negative story is that all that work to move higher since last week hasn't been as strong thus far compared to last year's short term rallies. Overall for the short term picture, I'm expecting higher prices for this week but use it as opportunity to do some selling of existing long positions.