CAUTION: The Market Rally is Over
Done, finished! Any investor who is buying into this market dip thinking that the next 4 – 6 weeks are going to be up up and away need to drop back down to earth. The S&P 500’s close under the 50 day moving average is the last brick in the bulls wall of support.
Some fun facts for you to consider:
- Out of the last nine trading sessions on the S&P 500, six have been distribution or heavy distribution days.
- Bye bye 20 day moving average support.
- Bye bye 50 day moving average support.
- There were 9 stocks down for every 1 up in today’s heavy volume session.
A great chart by Dave Singer also shows the massive rising wedge that has been forming (Note chart is of the Dow Jones and is from this past Tuesday, October 27th):
Click to EnlargeThese rising wedges are traditionally very bearish and this time around is no exception. It is hard to tell if the Dow closed out of this wedge formation as of today’s close so keep a close eye on this potential formation breakdown.
Also, check out the Volatility Index below which has spiked nearly 30% in the last four sessions:
I want to clarify that I am simply calling the rally since March as over and that we can see downside pressure for the short term, 4 – 6 weeks max. If we see the rising wedge collapse to the downside, MACD confirmation, etc. then that may turn this retracement into a different scenario with darker possibilities.
Overall though cash is back to being king. In fact I am back in 100% cash as of last week. Last time I went 100% cash was back in August of last year and we all know what happened after that.
Stay smart out there!
10 Responses
Other Websites Referencing This Post
- The Wikinvest Daily Angle » CAUTION: The Market Rally is Over
- Trading Finance » Calling all Gold Bulls, 7 Great Stocks to Consider
Great article, thanks for the tip!
So much for this theory! .DJI is up 175 so far today (11/05/09). If this track follows previous rebounds, we’ll soon see the DOW at 10500……
It’s not a theory, it’s a fact
Keep a close eye on the volume today and more importantly the close!
So how do the current conditions differ from the conditions on 7/13, 8/19, & 9/4/2009 ? In each of these rebounds, the 20 & 50 day averages were also broke, but the market did rebound…. In each case the volumes were in the 175M to 300M range. What will make this market condition any different?
Number of distribution days is what has me worried. Overall the up days now are on lower volume and the down days are on greater volume. Out of the last six straight up days only one has been accumulation and that was today!
I dislike the volume of the past month. Since October, I’ve seen lots of predictions of a major slide down that would rival the March lows. Well maybe. Or maybe more contained sideways moves. Down days here and there with muted rallies. Maybe a decent move down of 2-3 % a couple days this week or next seems to fit. I pulled back significantly and its not been fun watching short term opportunities continue to slip past me. Think I’ll find my way back in at some point and just keep my expectations low.
It is hard to get bullish when the upside comes on lower overall volume and without any real reasoning. I think there is a lot of downside risk to just go full equities.
Blake,
I totally agree with your assessment. I went to 60% cash today, and have begun putting additional 401K deposits in cash. I actually found this article thru Wikinvest. The market couldn’t break 1100 yesterday and reversed to the downside today.
Good trading.