Thursday, April 2, 2009

Market EWP Count Uncertain, But Momentum Weak Tomorrow Should be a Big Down Day; April 2, 2009

The market rallied well above my control points and I exited half my S&P position a few minutes after the open this morning. The EWP count is unclear so I posted another chart showing the weakening stage of the market. It launched in a straight line up in the beginning, but over the past week or so it has struggled to make new highs and is looking wobbly (see above 4hr S&P futures chart). Several other indicators suggest a selloff may occur tomorrow:

1) The XLF did not make a new high today and actually sold off all day, even though all the major indices rallied to new highs.

2) The Nasdaqs were modestly weaker today.

3) The market soldoff a bit at the close today.

4) The VIX (volatility index) barely dropped today, and was actually up at one point of the trading day.

5) The RSI has not made a new high since March 18th, despite the fact that the S&P futures have rallied 30 points with 3 new significant highs during that time.

All three of the above suggest internal weakness in this rally. The first 4 above tell me that people are getting nervous on this big rally so they're staying away from the risky Tech stocks, they're buying a lot of puts as shown by the VIX, the financials have lead the market lately and they soldoff all day, and stocks soldoff at the close indicating more nervousness about holding stocks overnight especially with the jobs numbers coming out tomorrow.

With evidence of today's market action, the speed and length of this rally, and the big jobs numbers coming out tomorrow; I am bearish this market in the very short term. I will probably not add to my short position unless the market goes higher with all the same conditions occuring above still happening tomorrow, or if the market opens flat.

I'm still half short the S&P and am fully short the XLF pending a strong break of $9.70 where I'll close half.

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