Wednesday, August 6, 2008

August 5, 2008; Some Degree of Top Approaching

The indices are all in the green and price movement up seems strong. However on today's 3 and 1 minute charts you can see what looks like a wave 4 consolidation at the Dow's break even level on the day. Also, even though the indices are up righ now, (Dow up 40+), the NYSE breadth is flat and the Dow's breadth is actually negative. So the desire to buy stocks right now is waning. Also, as you can see from the 30 minute S&P chart I posted above, the stochatics continue to drag downward even though the price continues to climb (red lines). When you add all this together, a top is forming. Whether it's just a short term top, or THE top, we'll have to wait and see.

With the bearish divergence on momentum indicators, and no real fundamentally or technically solid reason to explain this rally, I think this is a trading rally and average Joe investor rally. But the smart money is steadily establishing short positions as the market moves higher. Eventually the sellers will overcome the buyers in huge force; giving way to wave 3 of (3) down. Right now it seems that the 1320-1330 level is a going to be a good area to look for a top in the S&P if it keeps rallying. But I'll get more specific stuff once today and tomorrow's sesssions end.


Anonymous said...

OK, Thursday AM. Held the shorts because 1289 level was not breached just touched. Overnight sell off so far looks good. Seems to be some support at 1280 but I see 1275-1270 at minimum to correct even if we go higher. That would be about .382-.50 of the rally so far. Today should be fun. FX has a lot to chew on with the ECB and BOE rate decision. Diver

Todd S said...

Good trade Diver! I was a bit suprised by the severity of the decline today. I'm still not convinced this is the "Big Daddy", but it definitely is tradable in the short term.