Was Tuesday the Top? (by Andy Crowder)

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Numerous downgrades, more European woes, news of inevitable Greek default, financial sector struggles among other bearish news led to a lower, oops, higher open today? Yes, higher.

It has indeed been rather frustrating as a short-term bear since the gap open on 1/3. But, oftentimes when you are a contrarian and you make your livelihood on fading short to intermediate-term market extremes you often get into positions early. Any professional with any cred will tell you the same. It is to be expected. However, we are now nearing the area of max pain. While I thought we would see an immediate push lower after the first week of the year, I was willing to accept a push up to 1300 on the S&P or roughly $130.00 in SPY. We hit that level today and after the bulls pushed and pushed they failed miserably by the end of the day.

I mentioned in earlier posts about the weakness that the end of January brings and I am still under the assumption that the market will indeed move lower to close the 1/3 gap unless SPY breaks the 1300 level and holds.

If you were not privy to the stats provided by the wonderful sentiment analyst Jason Goepfert of Sentimentrader.com he recently stated the following:

Starting around the 2nd week in January, stocks have had a consistent tendency to weaken.  Or at least not show much strength.  Especially technology.

I don’t want to hammer on this too much.  Seasonality is a tertiary indicator at best, and can easily be overwhelmed by fundamental developments, technical breakouts and changes in sentiment.

The performance of various sectors since the day honoring Martin Luther King, Jr. became an exchange holiday in 1998.  The performance of QQQ was positive only 1 out of 11 years into the end of the month.

He goes onto to provide a wonderful chart that shows sector performance after the MLK holiday and the Nasdaq 100 only has a 9%, yes 9% chance of closing higher than its price level before the holiday.

Furthermore, 24 of the indicators he follows are reading bearish, not a single one is bullish. Some of the indicators include Rydex Bull/Bear RSI Spread, Put/Call Ratio – OEX Open Interest Ratio, every Put/Call RAtio including Equity Only, Total of All Options, Equity Moving Averages, Liquidity Premium QQQ and SPY, AAII Sentiment Survey and the list goes on and on. So, I think you get the picture.

1/3 gap here we come.

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