Last week I wrote that I was looking for a flatish week with maybe a weekly loss of 2pts and clearly that didn't happen. We're now in about the same place as we were at the end of the previous week and I am once again looking for a red candle week. I'm basing this on the fact that the RSI on the weekly and monthly SPX charts remain well above 70 and are showing overbought. But wait, there's more!
And then there's the market leader, the NDX/QQQ. The RSI on the daily chart has pushed to 72, a sign that the Q's are overbought on the daily chart. The RSI on the weekly QQQ chart has pushed to 80, which is higher than it reached in October of 2007. And the RSI on the monthly QQQ chart has pushed to 78, the same level the RSI hit on the QQQ monthly chart in October of 2007. Oh, and did I mention that the RSI on the QQQ 60min chart is at 79?
These levels of overboughtness were not sustainable back in 2007, but, hey, what do I know? Maybe this time it really is different and we're headed past the moon and into the depths of deep space. But I doubt it. These RSI readings indicate that just about everyone is in, that the supply of greater fools is very limited.
IMHO, these levels of overboughtness are not sustainable any more now than they were back in 2007. If we don't have a give back period of one degree or another, and soon, lasting a week or maybe even longer, then the markets could be setting up for some kind of blow-off top type event that would lead to a major decline. My analysis of the monthly SPX charts says we're good to go until at least the end of January 2014 but the markets have got to have a cooling off period between now and the end of December for my monthly analysis to be valid. In other words, a cooling off period now means a green monthly SPX candle for December and January.
So that's my story and I'm sticking to it. In the week ahead, I'm looking for some kind of give back in all the major indexes and especially the NDX/QQQ's. Doesn't have to be much, just enough to allow some of the overboughtness to get worked off.
There's a 33% chance that my analysis and market expectations are correct.
GL in the week ahead.
Comments
CurtisM
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BM, thanks for your comments. On the 60min SPY chart I follow, SPY broke the trend line off the October lows today. Still, this ain't the fat lady. Important level for SPY is 177.99 from the 20th of November. If that were to get taken out with volume, then maybe we'll get the pull back that I think is so important.
GL
CoinedByCrypto
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Yes I fully agree in your statement:
"These RSI readings indicate that just about everyone is in, that the supply of greater fools is very limited.....
We will see some chop here but first indication of a beginning trend reversal will be breaking the smaller shs with neckline around 1800 Then next step on the way will be to take out 1793,71 (EW - wave 1 violation), 3rd step will be breaking the potential bigger shs with neckline around 1776 around. Then we can have some more confidence in the bear wakeup from hibernation (See my draft underneath on a 1 hour SPY chart).
GL