Thursday, 28 October 2010

11:45 BST - SPX: Indicators and Internals still suggesting conditions are in place for a pullback - confirmatory price action still awaited

These charts, updated from the last time I posted them on 22 October (click here to view that post) continue to suggest that care is required on the long side:

SPX Daily:

The comments made in that last post with regard to the indicators on this chart continue to apply as price remains stuck around the median line of the pink pitchfork.

CBOE Equity Options Put/Call Ratio:

The 5ma has moved decisively above the 10ma and the latter is trying to break above the pink downward (bullish for the market) channel.

The McClellan Oscillator failed to make a new high with the market once again, simply backtesting the broken green upward channel and the zero line. It still paints a bearish picture.

SPX Percent of Stocks Above the 50ma:

The sell signal triggered on 19 October remains in force, but we now have the 13ma now appearing to roll over, which should reinforce the signal.

NYSE Tick:

The bearish divergence on this chart continued as the market shot up to the 1196.14 high, so, still indicates internal weakness.

In light of all of the above, short trades do seem to have a good risk reward, provided (and this is crucial, of course) proper stops are placed. This is because despite everything shown in the above charts, we still haven't seen any decisive downward action to confirm what these charts are suggesting. Until we see that, the trend remains up and these divergences and bearish configurations can feasibly continue and/or work themselves off as the market goes sideways or grinds higher.