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business newsSPX Update: The Market Is Now Historically Overbought
By
Jason Haver
Feb 02, 2012 8:40 am
A short term pivot point, in the backdrop of long-term overbought conditions.
PRINT
No material change in the counts since yesterday. The S&P 500 (SPY) hit yesterday’s target, and actually exceeded my exact 1328 target by a couple points before reversing. A small moment of truth for the short term preferred count is now upon us. Trade above 1333 would eliminate it, while trade below 1321 would add confidence to it.
Below is the very short term chart, which highlights the key levels.
Click to enlarge
If this decline is to continue as a leading diagonal, it will be very difficult predicting targets until the smaller sub-waves start to unfold. There are few Fibonacci relationships within leading diagonals, so I'll have to see the form taken by the next wave before being able to take a stab at a target -- much as I did yesterday. The only concrete rule at this stage is that the next wave (presumed to be a small third wave) must exceed the low of wave 1 (1300.49). Wherever the next wave bottoms, it is currently expected that after it bottoms, it will then retrace back above 1300.49. Cautious traders please take note.
Again, if this is indeed a leading diagonal, then the market is expected to have a choppy downward bias over the coming sessions. "Choppy" is a key word here.
Below is the hypothetical example of how the leading diagonal could unfold, as shown previously. Please note this is not intended to be an exact price projection at this stage -- as I said, there are few Fib wave relationships in this type of move. It's merely intended to illustrate the concept; price projections will have to come later.
Click to enlarge
Yet another signal that a top is likely to be much closer than the bottom now is the Bullish Percent Index for the Dow Jones Industrials (and others). The Bullish Percent Index (or BPI) is a breadth indicator based on the number of stocks on Point & Figure buy signals within an index; readings over 70% are considered overbought, while readings under 30% are considered oversold. The current reading is 96.67%, a virtual tie with the highest readings ever recorded.
All three readings at this level have occurred post-2006. The chart below lines up the signal readings with the SPX price chart in the bottom panel.
Click to enlarge
And finally, the bullish alternate count. Again, the count below is not my preferred count, and is presented in the event that the market exceeds the 1333 highs, so readers will have one idea of what may be unfolding. I feel that in the event that my previous call that Thursday was the top proves to be a tad early, then the top is still very nearby. However, that's only my opinion, based on the supporting evidence -- so conservative bears may want to trade accordingly and keep tight stops on their trades until the trend actually changes. Until proven otherwise, the trend is still up.
Click to enlarge
In conclusion, several days ago, I put forth my preferred view regarding what's unfolding -- and now it's up to the market to either disprove my theory or add confidence to it. The key levels for the short term are both nearby, so the first question should be answered soon. For the intermediate term, I continue to believe the market is very close to a meaningful trend change, but there is still no confirmation of that view. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
Below is the very short term chart, which highlights the key levels.
Click to enlarge
If this decline is to continue as a leading diagonal, it will be very difficult predicting targets until the smaller sub-waves start to unfold. There are few Fibonacci relationships within leading diagonals, so I'll have to see the form taken by the next wave before being able to take a stab at a target -- much as I did yesterday. The only concrete rule at this stage is that the next wave (presumed to be a small third wave) must exceed the low of wave 1 (1300.49). Wherever the next wave bottoms, it is currently expected that after it bottoms, it will then retrace back above 1300.49. Cautious traders please take note.
Again, if this is indeed a leading diagonal, then the market is expected to have a choppy downward bias over the coming sessions. "Choppy" is a key word here.
Below is the hypothetical example of how the leading diagonal could unfold, as shown previously. Please note this is not intended to be an exact price projection at this stage -- as I said, there are few Fib wave relationships in this type of move. It's merely intended to illustrate the concept; price projections will have to come later.
Click to enlarge
Yet another signal that a top is likely to be much closer than the bottom now is the Bullish Percent Index for the Dow Jones Industrials (and others). The Bullish Percent Index (or BPI) is a breadth indicator based on the number of stocks on Point & Figure buy signals within an index; readings over 70% are considered overbought, while readings under 30% are considered oversold. The current reading is 96.67%, a virtual tie with the highest readings ever recorded.
All three readings at this level have occurred post-2006. The chart below lines up the signal readings with the SPX price chart in the bottom panel.
Click to enlarge
And finally, the bullish alternate count. Again, the count below is not my preferred count, and is presented in the event that the market exceeds the 1333 highs, so readers will have one idea of what may be unfolding. I feel that in the event that my previous call that Thursday was the top proves to be a tad early, then the top is still very nearby. However, that's only my opinion, based on the supporting evidence -- so conservative bears may want to trade accordingly and keep tight stops on their trades until the trend actually changes. Until proven otherwise, the trend is still up.
Click to enlarge
In conclusion, several days ago, I put forth my preferred view regarding what's unfolding -- and now it's up to the market to either disprove my theory or add confidence to it. The key levels for the short term are both nearby, so the first question should be answered soon. For the intermediate term, I continue to believe the market is very close to a meaningful trend change, but there is still no confirmation of that view. Trade safe.
This article was originally published on Pretzel Logic's Market Charts and Analysis.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.
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