Thursday, February 9, 2012

The Internals

Stocks above their 50 day MA
Readings of 75% and above call for a top in the market. This called for a short-term peak in November as you can see in the chart above. Now that we are at these elevated levels again, the expectation is that a top is due. In addition, the overall structure of this indicator can be classified as a double top (with the right peak slightly higher than the left peak). The double top pattern that you see is not in agreement with the pattern of the overall market averages. This is a result of divergence that forms, and more often than not, suggests that a larger top is in place.When the market moves higher, but price in relation to its moving average remains relatively the same- watch out!

The SPX- Daily Chart

The S&P 500- Hourly Chart
In order for a reversal to transpire, prices must decisively break the lower trendline and develop a series of  lower highs and lower lows. This should correspond with a confirming close below the 10 period moving average on the daily time frame. I also want to mention that there was a relatively high "selling on strength" number for the SPY. This number represents the money flow out of a particular stock. The SPY is a proxy that mirrors the performance of the SPX cash index. 

 The QQQs- Daily Chart
We all know how parabolic moves end.

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