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Stock Market SPY Sell Signal

Stock-Markets / Stock Markets 2010 Jan 04, 2010 - 01:18 PM GMT

By: Angelo_Campione

Stock-Markets

Best Financial Markets Analysis ArticleCurrent Positioning: SPY: Short 75%


General Commentary:

Welcome to 2010, a new decade is here and it's never been a better time to be alive. Sure there's no certainty about what tomorrow will bring but with the right mindset, it won't matter. It's all about being sure footed in this moment so that you can take a confident step into the next moment. Lets enjoy and prosper from where we are now and remember, from little things, big things grow!

On to the market.

Since our last report, the market has risen a little as anticipated and really wants to show that it can continue its run higher. The problem is that it's looking quite tired and in need of a rest now. A move lower into March would allow the market to wash away some enthusiasm and then set up the potential for a new high around the 1200 level by late summer.

On the other hand, if the market continues to push ahead into March, it'll be time to "sell the farm", as they say, and look to re-enter long in late summer. At this point, I'm leaning with the former scenario, but time will show if either scenario is correct.

SPX Chart - Much Bigger Picture

Here's a chart I like to put up from time to time that shows the really big picture. When the market is below the 20 EMA, we're in a bear market, when above, we're in a bull market.

We had thought that last years move was a bear market rally and would fail at the 20 EMA, but now that we've cleared that point, the potential for new bull market phase to begin is increasing (as unlikely as that seems with 10% unemployment!).

Please note that this chart is NOT a timing indicator and just because it's now above the 20 EMA, doesn't mean it's blue sky ahead. It's simply showing the beginnings of a potential new phase.

SPX Chart - Bigger Picture

For the medium term we continue to see a rising bearish wedge, a close below 1115 this week could mark the beginning of a corrective phase.

Note, the MACD still hasn't crossed over, although it's very close and we still have negative divergence in place. This picture has been testing the patience of speculators for considerable time now!

SPX Chart - Shorter Picture

The shorter term shows a close up view of the rising bearish wedge and points to a break happening very soon.

Monday should see normal volumes return to the market and we could get a pop higher just to go against the crowd and thereby appease the fear that crept in on New Years Eve. But for the rest of the week, we anticipate a move lower.

Note the negative divergence on the MACD is still clearly visible.

For the week ahead, support on the SPX is 1110 and resistance at 1130 - 1135.

The VIX Picture

Interestingly, the VIX also has a wedge formation, opposite to that of the SPX (falling bullish wedge), which adds strength to the bearish scenario for the near term. Note also the positive divergence on the MACD histogram.

We'll need to see a close above 23 however, to see confirmation of the above scenario.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance

We're using a starting capital of $5,000 and allocations are based on 25% of this or the remaining balance.

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

Important Disclosure
Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.
Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.
In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.
For a complete understanding of the risks associated with trading, see our Risk Disclosure.

© 2010 Copyright Angelo Campione - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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