The collision of global markets and social mood

Wednesday, July 10, 2013

Curves Ahead

The market can be incredibly precise when it wants to. That's why I often cite prices to the penny. Because when it comes to wave structure, pennies matter.

Yesterday the number was 1654.19. The market got to 1654.18.  It sold off.

Does this mean the uptrend is doomed? Hardly. I'm not seeing much in the overnight session to make me think so. In fact, the wave structure would look better with one more tiny high. But that's not exactly scientific.

However, this market has been acting in a suspicious way, and caution is warranted. Once again, it has tanked on high volume and has recovered on much lower volume. That's pretty much been the case since 2009, though. But it's still unhealthy.

During the initial lift off from the 1560 lows, ~44 points of it was due to overnight gaps. The ensuing day sessions were rather listless. This week the gaps are still in play. One in particular stands out: 1631.89. The lowest gap is 1573.09.

Others are commenting on a bullish breakout of the cumulative A/D line. However, I see negative divergence all the way back to April 22nd. The A/D indicator I use is more for short-term trading.

UVOL/DVOL is still negatively divergent against the June 25th low (1560.33).

The worst offence is that equity is outperforming high-yield credit. This has consistently marked "pauses" in the rally since 2009.

All this adds up to a market I want to sell. Yet this is still a market that, in my opinion, wants to make a new all-time high. Getting there may not be so easy. There could still be some sharp curves along the road.

I still hold SPXU at a loss with a smaller SSO position against it. I will use any sharp curves to add to SSO using 1604.57 as a stop. Now that we've gotten through the holiday-shortened trading doldrums, I'll add options to the mix as well. Puts at new highs and calls on dips.

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