Thursday, June 10, 2010

Don't Sit Too Close To The Campfire

The chart below shows the ADX signals generated over the last 2 years. The signal I am referring to is generated when the ADX is above either the +DI or -DI lines and ticks down. When the ADX ticks down from being above the Directional Line it is a sign that the markets are about to change trend. This occurred yesterday June 9th one day after the market made a low near the May 25th low.
  • June 8th: Jupiter conjunct Uranus--S&P @ 1042.17
  • May 25th: Venus opposed Pluto
  • May 23rd: Jupiter opposed Saturn
  • May 25th S&P @ 1040.78
Although I am still in the bearish camp, prudence dictates that one be prepared for a change of trend. This may be a short lived bounce that merely relieves the oversold market situation--or--it could be the recommencement of the drive to infinity and beyond by the markets.

  • Bearish sentiment is increasing as demonstrated by the unusually high 5 day TRIN readings and other market technical indicators.
  • Bullish Volume Ratio has not broken down
  • Transports holding 241 points above the February 2010 low.
  • Option ratios are not screaming buys but have receded significantly from the exuberance indicated in April.
Probably the most disconcerting sign that a important bottom could be in place is that a major Canadian banking-brokerage institution released a research report that suggests investors go to cash. The causes my contrarian nature to be very suspect of further declines. When was the last time you saw a brokerage house tell clients to liquidate?
It is time to be cautious and adjust market exposure (long or short) accordingly.

If this rally fails and the markets decline below the November 2nd 2009 low @ 1029.38 it would probably be the pin the bursts the bubble and result in a MASSIVE decline that would be violent and unrelenting (Historical South Sea Bubble Style).

In the mean time be cautious--be aware--and be flexible.

1 comment:

Anonymous said...