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“That Was Close !” . . . Again April 19, 2013

Posted by Tom in Thoughts.
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A very interesting situation over the past 2 weeks as my Market Model came to the absolute brink of changing from Bull to Bear twice.  The latest was on Thursday of this week when the technicals in my Model tilted negative, plus the NASDAQ Index did close nearly 2 points below my 3168 support level (see chart below).

NASDAQ

What I found interesting on this chart was that Wednesday was a big down day on increasing volume (bearish), but even though Thursday was a significant down day, the volume level eased up.  Not a sign of immediate Distribution and selling.  What I want to see is the day after my model turning Bearish showing me some follow thru and that did not happen on Friday.  In fact Friday was a pretty healthy up day.  That was needed to keep this guy from “hedging out” (a process of buying “Bear ETF’s” to go effectively market neutral / Cash).

Now for sure don’t get me wrong, I’m not singing “Happy Days Are Here Again” and sounding the all clear.  Not by any means !  There are three scenarios here: 1)  The market blips up next week then falls through the 3168 level decisively (shown in red).  2)  The market continues its march up and eventually gets to higher ground like it has done time again recently (shown in green). or 3)  The market stays in a Trading Range bouncing between 3300 and 3165 (roughly) for the next month or longer (the Summer scenario).

I really believe that the next 6 months will require an investor to be a good picker.  A picker of specific sectors and stocks if they are going to make much money.  I know nearly everyone from CNBC to IBD is expecting / predicting a correction here, and maybe they are right (if they wait long enough, they will be right).  But let’s not take that for granted.  The market does not have to do anything and will probably make the most number of people wrong; it usually does.

On the chart above I’ve given preliminary labels to major Wyckoff points.  These are in lower case and have a (?) next to them.  That is because we really have not quite fulfilled the three major tests of Distribution: 1) Breaking a trend line (check).  2)  Showing a major sign of weakness (SOW) (not quite yet, remember that 3168 level?). and 3) A failed rally back up (red lines).  So we are getting mighty close, but not quite yet IMHO.

Here’s what an Accumulation / Distribution pie chart on the S&P 1500 stocks components looks like:

Accum-Distrib

Pretty evenly split with about 1/3 in each camp.  The market could go either way next week and that’s what I’m seeing right now.  Have a good week and keep an eye open for the direction and strength of the next swing.  Good Trading.   …..  Tom  …..

stock chart courtesy of MetaStock; pie chart by www.HighGrowthStock.com; all used with permission

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