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Thursday, April 16, 2009


Pullback over next couple of days?

Here are a few charts indicating that there's a good chance the market will pull back over the next couple of days.

The first one is one we've posted before, showing the 10-day EMA of the NYSE Tick:

Previous times when the 10-day EMA of TICK spiked to the 600+ area, the market sold off from there. However, this rally's been different, as evident in this close-up view of the same chart:

During this whipsawing rally, today was the 6th time this indicator spiked above 600. Each of the 5 previous times, marked with a vertical blue line, the market sold off the next couple of days, twice bouncing back up off the second day low. If this time is like the 5 previous times, the market should sell off into Monday. If it's like the times before this rally, the selling should last more than just 2 days.

This chart shows the % of S&P 500 stocks above their 50-day moving average:

Before this rally, spikes over 80% preceded significant selling. This spike has reached higher than the last few, at 88% today.

Finally, this hourly chart of the S&P 500 shows a huge rising wedge along with a bunch of bearish divergences on PPO (similar on other indicators):

Each spike to a higher high over the past month has made a lower high on PPO. If this one does the same thing (it's still on a buy signal), it will be an amazing 5th lower high on PPO while the market makes a higher high. Such bearish divergences usually lead to selling, but this rally has been very resilient.

We'll see if the market pulls back the next couple of days, and if that pullback (if it comes) gets bought up quickly like the 5 previous ones. It should be interesting to see how this plays out.

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