It's tough to make a strong case against the S&P rally since it keeps defying all odds and floating higher and higher. But from a technical analysis standpoint, I am skeptical of higher levels at this juncture. The wave count is still consistent with a continued decline towards 1800 before resuming another strong uptrend. This is contrary to seasonal positioning as the "Santa Claus" rally would be getting underway next week and would not support this wave count. So I'm cautious on both sides ending the year and prefer to day trade this market and not swing trade at the moment.
One thing I have been watching is the action of the small caps (Russell 2k) relative to the overall stock market (S&P). Up until a few weeks ago, the small caps were lagging the overall market quite a bit. But recently, the small caps have shot higher and are attempting to close the gap. I think that small caps still lead the way for the overall market as they are a good risk barometer, but still nothing tradeable here, it's just another thing to watch to keep you honest when trading the market.
Also, although the Nasdaq as a whole is keep pace with the S&P, major tech stocks like Amazon, Microsoft and Baidu are showing signs of exhaustion, which could be the early signs of a pullback as well.
Conclusion: I don't like this fractured market behavior and the apparent exhaustion of some major stocks that also can be seen as risk-appetite indicators. In addition, the wave count off the wave A low is very corrective looking with its overlapping waves. However, the market appears that it just wants to move higher regardless and it's tough to try and fight that trend. So I remain cautiously bearish, but am looking for only day trades on market indexes, and also for shorts in individual stocks such as Microsoft, LinkedIn, and Baidu.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
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