In other words it is not easy to get this market to decline more than 1 or 2%. Only a couple days after I issued a BOT Short signal the decline so far is a very meager one that is really slow on the tape. To get this market to decline more than 1 or 2% it seems the bears have to sell their soul or something similar.
The most concerning aspect of today’s decline (from a bear perspective) is the very weak downside volume on either the SPY the DIA or the QQQQ. This contrasts very sharply to the April 2010 top in that the April 2010 top had a series of extremely high relative down volume days right near the top of the price range near the highs.
But this time around I am seeing a dramatic decline in sell volume on today’s gap down. Of course there is still time next week to start getting some of the high volume down days but so far the market has not obliged.
The other issue of concern for the bears here is that despite the last 4 day pullback, there is nothing abnormal that has happened so far when we look at the DIA chart and a few other indices as well. The DIA has basically done a classic Wyckoff Retest today on low volume. We broke under yesterday’s low and then closed back above it and this was done on 50% lighter volume. The volume shrinkage today on the retest is quite telling.
So the DJIA basically needs to hold 11,231 in the week ahead to maintain this Wyckoff retest structure and open the door for either more flat trading and then eventual new move higher.
Only a decisive move below 11,231 in the DJIA is going to get me much more bearish or a move below 1204.49 on the sp500. We just have to presume still that the market has enough strength to hold its ground here.
As far at the BOT Short Signal I might have to switch to a different signal again soon but I am in a bit of a stalemate as to what to do next. The volume picture, the classic Wyckoff retest picture and using price as a leading indicator seems to suggest that one should remain neutral here until we break out of the current trading range that started on 11/4/2010. But it seems foolish to switch to a new long signal tomorrow for the possibility of only a small handful of sp500 points to the upside. So I will keep the Short Signal for possibly another week on the premise that the market is working into some type of topping process here.
But on the other hand, we do have the daily MACD pretty close to bearish crossover mode on all the major indices. On the NYSE composite index I am seeing a bearish divergence between the recent price highs and MACD. An oscillator such as MACD is not a leading indicator however the bearish divergence gives it a little extra weight this time around. The Wyckoff retest and the volume picture I mentioned earlier is much more timely.
The summation index is meandering sideways as price pushes higher. I have no clear signal from the summation index. It did tick down today, but it needs much more work before it can be said it has charted a new momentum direction.
The US Dollar was again strong today and this seems to be the wild card that could get this market to take a hit. But we need to see the UUP ETF break above 22.70 very strongly as a sign that a ‘real’ dollar rally is kicking in and maybe gets the stock market to correct a bit more.
If we look at the blowout volume that silver had two days ago of 150 million shares on the SLV ETF, it sure does seem to support the case of a some type of consolidation process for the metals. But the super high volume reversal in silver two days ago did now show any follow through the last two days and we may go back up to test the high of 28.72 on the SLV. It will be extremely difficult to bust through that level however because of the HUGE climax volume up there.
So there are some mixed signals now with the possible bias to the long side. But the market is going to have to ignore a possible upside break out in the dollar index, ignore a possible intermediate term topping process in the metals, ignore the daily bearish crossover in the MACD and a bearish divergence in the MACD on the NYSE composite index.
We are almost into the middle of November 2010. If the market can somehow get more decline going into end of November it would set up quite a bearish looking monthly candlestick. But for now that is a big ‘IF’.