First chart is our Timer Chart for SP-500 Cash Index (SPX). Notice that McClellan Osc for NYSE closed today at-211 level. This is a short-term extremely oversold signal. Given that Nov Options X is next week and we often see a counter-trend move during options expiry, odds are that we should go up a bit here into next week, make a bunch of put options go worthless (the Options MMakers have to pay rent too come Dec 1st !!), and then cascade DOWN. What is very clear now (since my last post here on Friday October 19th) is that Cumulative ADVANCE/DECLINE Line (yellow line graph) peaked this year in early June and with next two all-time highs in SPX, the Cum AD Line has setup a Bearish Divergence. In addition, we closed below its 200-day Mov. Avg.(white line graph), for the first time since Sept 10th.
Same analysis goes for the next chart: the NASDAQ-100 Cash Index (NDX) -- except that one has to be reminded that the CUM AD Line for NAZZ peaked in FEBRUARY of this year. This does not bode well for the LONGs' argument.
Next Chart is our Wyckoff chart and what I want to bring to your attention is the fact that while DJIA & SPX each made a three-weeks lows yesterday (channel breakdown pattern), DJ Trans put in a multi-month low and closed near its 2007 Open. This is, again, an ominous sign for our equity markets as a whole as the rate of economic expansion slows down.
Next chart shows Russell 2000 (RUT). Here we go again, another six weeks low (since August 16th when Uncle Ben sent some of our SPX trading brethrens into the next world prematurely in order to save Citigroup from imploding). Risk tolerance is now at a new premium not seen recently. Bids to the market should evaporate. Stay defensive.
Volatility is increasing in both NYSE and NASDAQ markets but as next two Sigma Channels charts show you, they are NOT at exhustion levels YET.
Most probably, this is where I think we will go to on this first leg down: 1422 on SPX. which corresponds to -2 sigma at this time. There is an outside chance, we may get down to -3 sigma (1383). Notice this is the Weekly Chart. So it will take time to get there. My guess is that this will be in the next 3 to 4 weeks or so. If 1383 does not hold,... well, we shall get to that on my next post.
Bottom Line: For Intermediate-Term Timing, STAY SHORT.