Flashing Sell Signals

I’ve read several analysts over the past few days that compare today’s market to that of 1987, but they say at least back then there were pullbacks which gave traders and investors opportunities to enter the market. As the stock markets have literally ripped higher in a straight line the past three weeks good entry points have been non-existent. But I think we could be close to some serious profit taking and trading opportunities.

We have a Fed unable to taper its asset purchases, an S&P 500 that is up more than +30% from a year ago and +25% YTD, national debt at $17 trillion and growing by the minute, and an Affordable Health Care Act that is a debacle and will ultimately cause a drag on the economy and an increase in taxes to all Americans. Eventually the market will wake up and smell the coffee. It has been all up and no down which is good for stock owners but not so good for the futures traders who need good entry points.

What’s troubling is the higher the stock market goes the lower the volumes have become. Yesterday the S&P 500 made its third record close in a row and has made 7 record high closes in the past 9 days. In total the index has been up 12 out of the past 14 trading sessions. Since the most recent rally from October 10th the volume has continued to diminish and that is not a good recipe to be bullish, at least in the short-term. Please observe the chart below which clearly shows decreasing volume (decreasing grey bars) while technical sell signals are flashing warning signs (the same signal – red down arrows circled in blue – triggered on September 19th which led to a -80 point decline).

Chart of the S&P 500 as measured by the ETF SPY and the December futures contract ESZ3


They say the trend is your friend until the bend at the end, but it appears this trend is starting bend my friend. In a perfect world I’d like to see the ESZ3 contract surge into the 1775 to 1780 level with momentum. That should take out a load of buy stops and be the set-up for a great shorting opportunity.

Stay tuned… The FOMC announcement is bound to cause some fireworks.