Friday, February 19, 2010

Still No Follow Through Day

I think there can be no mistake about the fact that this entire rally off of the March 2009 lows has been a liquidity event – namely that all it has been is speculative money chasing its tail all the way up, on little to no fundamental footing.

Now The Fed has started to remove liquidity. That should start to change the calculus.

There was no Follow-Through Day on the rally that started in early February. That means that the big boys were not committing serious capital to the rally. Consider it more of a trade than an investment. Bull moves don’t start without Follow-Through Days.

S&P 500 Resistance and Time Cycles
You can see that SPX is now entering the meat of resistance and that there are some time cycles on Feb 23 and 24. The January 11th high is a pivotal high, because it coincided with a combination of weekly time and price levels. So now you should be looking for a failed retest of the 1,150 range.

What this means in English is that there is now the potential for a reversal down next week. A reversal down would set up a lower high on the chart and probably set us up for at least a retest of the early February low. We will see if this voodoo triggers. I will look to sell weak areas if it does and then try and add to strength on any Follow-Through Day.

I have seen lots of potential Bearish Wedges, where prices have rallied over the last few weeks on lower and lower volume.

I have also seen lots of the choppy, panicky up and down action that is commonly referred to as “Wide and Loose” and is often indicative of a top.

Make no mistake, when Commodities top, this Bull Market is over.

Look at how the Metal’s ETF (XME) has rallied on imploding volume –

The broad markets have the same issue ($SPX) –

International Markets
There are many International Markets that have had this – sell on heavy volume, then rally up on light volume, over the last few weeks –

EAFE – Developed Europe, Australasia, Far East (EFA)
Hong Kong (EWH)
Australia (EWA)
Brazil (EWZ)
Austria (EWO)
South Korea (EWY)
Emerging Markets (EEM)
South Africa (EZA)
to name a few…

Be very careful in here. Many of the pieces are in place for the Markets to reverse lower from here. We will see how things trade, but the setup is there to take prices lower.

Apple (AAPL)
Take a look at the chart of Apple (AAPL). That has the potential to be a perfect Top. Look at how the weak rally has been on declining volume and has left a Doji Star at the 50-day. A break of $190 on significant volume would be very bearish for Apple!