The collision of global markets and social mood

Wednesday, January 23, 2013

A Look Under The Hood

The S&P 500 closed on its highs yesterday, right in the middle of the Fibonacci extension zone cited yesterday: 1492.56. Futures spiked after the close on several earnings announcements, but fell in the overnight session in a 5-wave, impulsive fashion. They've since bounced, but have done so in three waves (so far).

Price wise, the markets look great.

Under the hood, not so much. There is a persistent trend of fewer advancing issues and more decreasing issues since the big breakout on January 2nd.

This is one of my favorite indicators (you have to click on it to get a better image). % SPX ABOVE 20, 50, AND 200-DAY MOVING AVERAGES. My hat is off to those who have rode this up here. But this is not where new longs get put on. This is where latecomers get hurt. Price is in the sell zone on each time frame.

There is a higher and stronger Fibonacci extension zone at 1497.92 - 1502.76 which would get the press excited. 1500 is a nice, juicy round number, and is mere points away from all-time highs.

Pullbacks will be bought by me and others until the trend line off the November lows gets broken (roughly the 1440 area). They should be expected to materialize out of nowhere, but when the dust settles they should be bought until the market proves it to be imprudent. It should be abundantly clear when that point arrives.

For this reason I continue to use slightly OTM call options. I also use puts which are then hedged with SSO, UPRO, or e-minis depending on the severity of the pullbacks. For example, I bought SPY 149 puts end of day yesterday. Good luck to me and you.

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