Saturday, April 7, 2012

Is the Top In?

Strange Times

In all the eight years I've been watching the markets full time, I've never seen a situation of the sort that's unfolding right now.  As of Thursday's close in front of a long holiday weekend, we weren't in bad shape.  The Dow closed down just 14.61 points, the SPX was basically flat, and the Nasdaq actually gained 0.4%.  There was no indication, technically at least, that things were about to turn south.  Then on Friday, a holiday, a day when stock trading was closed, the government released employment numbers - and they missed by a mile.

Now the stock market may have been closed, but the market futures were open apparently (I didn't even know about this) from 8:30 AM to 9:15 AM.  And in that brief time, they fell off a cliff, with ES dropping from 1392.50 to 1372, "recovering" to 1375 in the final minute.  I don't know who made money off this, but I sure wasn't one of them.

This move was the worst since March 6th, when ES lost 21.75 points.  And what happened the next day?  It retraced almost exactly half of that loss, and more than completely retraced it the next day.  But there's a big difference between yesterday and March 6th.  Back in March, that big dump took us right to the bottom of an ascending regression trend channel.  This time a big drop on Wednesday already took us to that spot.  Then Thursday traded outside the RTC which is a bearish setup.  And then boom, on Friday ES traded straight down from there - the bearish trigger.

But but but.  That was based on just 45 minutes of trading.  It's very dangerous to compare a daily candle to what amounts to less than a one hour candle.  And after four days of declines, ES is now quite oversold.

And it gets weirder.  On Friday eSignal posted a trade at 12:25 PM for one ES contract at 1390.25 which left ES exactly unchanged for the session.  ANd the same thing happened to both NQ and YM.  Now that's really weird.  Did some algo go haywire and place this trade by mistake?  On all three futures?  Is someone willing to risk a 21 point loss by manipulating the charts and turning a long red candle into a doji?  Or did eSignal screw up?  The same way on all three charts?  Lot's of questions, not many answers.  I'm still waiting to hear from eSignal.  FWIW, my broker's charts show ES closing at 1375.00 on Friday (which sounds more believable to me).

Is the Top In?

So that leaves us with the big question.  Have we seen the top?  Is 2012 going to be a rerun of 2011 where first quarter gains evaporated in the second quarter?  Is it going to be "sell in May and go away" or maybe, the way it's looking right now "had you fill, sell in April".
SPX Monthly

Well, I've got to say, that after the first week in April, the picture of the monthly SPX chart has changed considerably.  And here it is.  This is one of the main things I look at every week to make my vote in the Ticker Sense Blogger Poll.  And right now it's looking ready to roll over.  These are one month bars going back to mid-2009.  Note the eerie similarity of the current setup to where we were last year at the same time.

The RSI is quite overbought (I accidentally labeled it "RTC" in this chart).  Also look at the stochastic and how well it corresponds to both tops and bottoms.  The last two bullish crossovers there led to multi-month rallies.  And the last bearish crossover was in March, 2011, one month before the top last year.  The stochastic is now getting ready to form another bearish crossover.  And the candle itself that was looking good a week ago is now looking like a dark cloud cover which is quite an ominous bearish reversal warning.

So, bottom line is yes, I think it's time to start taking some profits and moving into cash, or at least doing some hedging with SDS, DXD or the like.  And I am going to switch my vote in the Ticker Sense poll from bullish to bearish for the first time this year in the poll coming out Monday.  I suspect we'll see a big jump in bearish sentiment then.  We'll get a better indicator of which way the market may move Monday when futures trading resumes tomorrow evening, but in the meantime, it's not looking good for Monday morning, and the bad part is that if you're not already short, I don't see any way to get in on it.  We may simply open down big time.  Should be an interesting day.

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