IWM Signaling that the Top Is IN

The IWM ETF is signaling to me that the top is officially ‘IN’.  I don’t know why I did not notice this before, but I am glad I have noticed it now.  This volume sell signal in the IWM ETF has just rocketed my confidence in the short side of the market with only 3 days left for trading in October 2010.  Because of this observation I am switching to BOT short signal as of the open on the sp500 on 10/27/2010.

Market analysis requires the constant digging for clues as to probably market direction.  Some indices give signals and others don’t.  The more you dig for the early clues the better off you are.

The IWM is showing me that we topped this week.  We recently tested the previous swing high on 50% less volume and then closed under that high. This is a classic volume sell signal.  It is telling me there should be hard down price action on the way soon.

I also find it quite interesting that this topping signal is also on the 26th of the month similar to the final top of April 26th, 2010.  Both time periods are at similar phases of the earnings release cycle.  The date of 26 is perhaps just a curiosity and coincidence at this point, but it is still interesting.  More important is the volume sell signal.

IWM20101026

In the near term this sell signal implies a move down to the bottom of the recent range which is the 69 level. 

I think the top is in.  We could be in for a similar 10 day plunge cycle.  The downside volume will be key in determining if that is to be the case in the days ahead.

Posted in BOT Short Signal, ETFS, Market Timing
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6 comments on “IWM Signaling that the Top Is IN
  1. Geoff says:

    I obviously read your work. I frequently comment. Your writing seems to be festooned with references to astrological aspects and now magic! A reader of your posts since June, the astro aspects turned out to be HUGE dead-ends and I have no doubt that the magic aspects will as well.

    You, and so many other letter writers, go for the spectacular, no doubt in the hopes of drawing attention. The latest example is the written words which in a restrained fashion call for a pullback to 69 (or about a 2.5% “drop”) versus the sharply downward blue arrows which point to 59 which at least imply a drop to of ten times as great or 20%. A huge difference.

    I give you a lot of credit for coming to some conclusion and putting it out there for the world to see. Unfortunately for the investor there is no magic elixir, and that goes for your postings.

    The flip flops have been frequent. I think the constructive suggestion I would make is that your short term forecasts be grounded perhaps in some long term philosophy / projection to give the reader a sense of how the reader might want to invest. In other words if your 6 to 12 month forecast is that the market will be lower than it is now, than, I may decide to forego a short term suggestion to go long, in the knowledge that (1) I can not time the market perfectly and (2) I want to sleep at night and will not worry about every squiggle of up and down. I do not really care about a move of 2.5% but I surely care about a move a 20%.

    I can readily be admonished that my comments are unfair. You are not omniscient. No one is. But I do think your presentation, like that of sooo many letter writers, can be more objective. It is MY fault that I seem to be looking for the magic elixir in some one’s musings on the market. I should make my own decisions and be done with it and suffer or bask in the consequences. That is what I have been trying to do.

    🙂

  2. RiceToaster says:

    Tom

    I totally respect your technical/charting skill but you have to understand that there’s government intervention in this market so you will get whipsaw. For the past months, how many times have you seen the market giving you short signal in the morning and then goes back to long in the afternoon at the close, and back and forth.

    Technical is important but as long as there’s FED intervention you will not get an accurate reading as to whether to go long or short. I was subscribed to an alert service for a while where I was given buy/sell signal base on trend, nevertheless I lost my pants following the signal because I would get whipsaw left and right. I decided to totally sit on the sideline and watch the show.

  3. Austin says:

    He uses big words.

    Tom, keep up the good work & thank you for being an active writer.

  4. Geoff says:

    As of close today (Oct 27), the 10 moving average of Adv / Decl ended a 38 day run of positive days and turned negative today. The bad news is that long runs of either positive or negative days are not a good predictor of a countervailing trend to set in. In other words, while today was negative, tomorrow might turn right around start a new positive string of positive ma days. In 2010, a string of 33 positive days was followed by 15 negative days; 33 positive days by only one negative day; 20 positive days by only 2 negative days; and 23 positive days by 7 negative days.

    The 10 moving average of ARMS / TRIN is only 1.13 which is a neutral number and it has been neutral (between .80 and 1.20) since early September 2010

    Tonight is the polling on the Aall Investor Sentiment Index – last week it was 49.6% bullish. It will be interesting to see what the vote is early tomorrow morning.

    An Elliott Wave blogger who seems eminently reasonable predicts a bit more meandering around these levels before S&P heading to 1230 or so. Ughhh. If it is an ughh, that probably means it will occur.

    I am a bear, but this wait is really really getting tedious.

  5. Tom says:

    Yes indeed. Whipsaws are a royal pain and very frustrating. What needs to be determined is whether the recent range trading is distribution at the top or simply a consolidation before a new leg up. My take is that it is distribution forming a top for now. It sure seems like the Fed is controlling the market, but if that is their intention then they better deliver a trillion dollars next week or the market might get cranky.

    I think we still topped out despite today’s reversal. Summation index and MACD still in decline mode… Usually what happens is they hold out until the very last minute. I dont believe in today’s reversal.

    Will be interesting to see the AAII numbers. Arms index is showing absolutely zero fear out there despite VIX trickling higher…

    I really hate to say it, but may have to wait until ‘next week’ before any real fireworks can happen.

  6. JR says:

    Tom, keep your powder dry. We are not there yet!

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