as an update to the NDX charts that i recently posted highlighting the increased odds of a very sharp pullback following reading of 80 or higher on the daily RSI (supported by a 15 year chart illustrating that we’ve never had a reading that high that was not followed by a very fast, powerful correction within weeks). does this mean that history MUST repeat itself in a similar fashion? No. however, it does help confirm, at least IMO, that the risk/reward to holding a portfolio of un-hedged longs remains about a poor as it’s been in a long while. remember that these sharp corrections, as well as market tops, invariably come just when it looks like this time it really will be different and stocks will continue to rise forever, as every warning sign and sell signal has been burned thru like they weren’t there. hard to time these things but they happen when the last willing buyer has bought his or her last share of stock and the last short who could no longer take the pain has capitulated and given up on trying to short the market (metaphorically speaking, of course).
as of now, i’m looking at the SPY and COMPQ sitting right at the R2 levels i posted this morning. AAPL has managed to poke above that resistance level on the 60 min chart but somewhat to my surprise, the has been little follow-thru in price action and an even more muted increase (or lack thereof) in volume, as i was expecting. for now, i’m just sitting tight and hoping the market allows me to take all my positions home over the weekend, vs. popping some of my stops tomorrow or in the last 1.5 hrs of trading today. regardless of it’s undeniable resilience, this rally continues to exhibit signs of exhaustion and is still plagued with many red flags, in addition to some of the recent sell signals that we triggered earlier this week.
btw- i did take a look at the charts of every single holding in IYR and if anything, i’m even more bullish on the IYR/DRN short/SRS long that i was before. tons and tons of components that are either poised for a technical breakdown as well as quite a few that have recently broken down and look to be at or near a re-test of their broken trendlines. we just need to see a correction firmly set hold in the broad markets and that should be one of the better sector shorts in the early stages.
