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Below I've put together three charts that had been on a nice upward trend that is finally showing some weakening and a desire to shift directions and move much lower. Granted, we'll need to see some market weakness in the days and weeks ahead, because at the current rate, it's hard for anything to trade lower.
So here they are…
SHORT: Consolidated Graphics (CGX)
Multiple daily hammer candlesticks on the indices yesterday, a sign of weakness and hesitation. The support trendlines on SPX and ES now also showing signs of wear and I think the topping process has started for the current wave up. That doesn't preclude new highs, but the writing is now on the wall for this move up in my view. On ES there was a definite break of channel support at the low yesterday and as I've said before, it is often the second break that is the decisive one. ES channel support is at 1286.5 this morning:
My post of January 10th made reference to a 10-Day 30-Minute chartgrid of the YM, ES, NQ & TF. I mentioned that any repeated attempts to advance convincingly beyond last week's high will need to be accompanied by higher volumes. The updated chartgrid below shows, firstly, that the YM has not been able to sustain a breakout above that high, while the ES, NQ & TF advanced today after re-testing this level. Today's initial drop occurred on higher volumes, with the bounce on lower volumes. My prior comments still apply…I'd be looking for higher volumes on any sustained breakout to validate a bullish setup.
Regular readers know that I am neither a Bull nor a Bear. I take trade based on expected market direction. Most of the time the trades give positive results fairly quickly. However there are times when I have to sweat it out a bit. Sometimes bad karma hands out a loss. Now is the time for sweat. As I wrote yesterday, I took the short trade 4 days ahead and now 16 SPX points wrong. Out of many parameters, few key parameters gave an early signal of market turn and I think I was impatient. Lessons learned and system strengthened. But I am fully committed to the short trade.
In the morning post (http://bbfinance.blogspot.com/2012/01/now-is-not-time.html) I wrote that now is not the time to close the short on equity. Remember the saying; “Be fearful when others are greedy and be greedy when others are fearful”. Now is the time to be fearful. In the early morning when Emini futures were flying past 1300, was there someone dreaming of SPX 1400 very soon. Obviously retail is chasing the rally. VIX is in 20s and for 2nd day running, index only put/call ratio is at 1.25 and equity put/call ratio is at 0.57. In other words, retailers are super bullish and why not. SPX 1400, here I come!
