This is a somewhat redundant post considering what a few have put up the past few days but it's worth staying focused on where we are right now versus where we were back in April right at the highs. This post I wrote on Sunday night so ignore the comment on ES futures. It's interesting to note that oil caught a bid today while equities caught yet another low volume bid.
The current market action is eerily similar to that of the April 2010 highs and subsequent correction. Granted Fed QE is still in operation unlike April, yet POMO is beginning to show less ability to move markets. The key comparisons are as follows:
- + In both run ups to the high, the middle bollinger band was not tested until just before the top was in.
- + Both runs up did not touch the lower bollinger band at all during the move up.
- + Both tops showed massive divergence on the MACD
- + The move that pierced the middle bollinger band in both run ups was a massive red candle down. The candle on Friday was more powerful than the similar candle in April for it set a new high, failed to hold that high and closed on the low. Both candles also found support at the prior low where the middle bollinger was first tested.
- + This is the key in understanding where we go from here. After the big red candle back in April, the next two days did move up, yet failed to make new highs before finally rolling over. Looking at the Asian markets right now and the ES futures, we may be in a similar attempted move up.
Personally, I think enough damage has been done from a technical standpoint, combined with questionable macro news (UK starting a new recession for example, US missing GDP on Friday, etc). I think many are not fully understanding what is happening in Egypt. To me it's not an Egypt story. No, I think it's a global revolution story. People have been oppressed for years and have finally had enough. Bears may be emboldened again should the market attempt to move up. It sets up a great trade with your stops at the prior highs should the market experience a move up the next few days.
The majority are expecting the market to move down on Monday, I would imagine and we know how that never works out. Even with the Fed and POMO and a market that always seems to catch a bid, the risk reward here favors the short trade to purely cash trade in my opinion. I remain short and hedged via credit call spreads but until a clear direction is shown, I won't be adding to my current position.
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