I Wasn’t Expecting To Post This Week, But…

We had some major developments this week, and are left at a precipitous point. Last week I pointed out that if we had a low below -95 on the VO, we were in danger of creating a Bear T formation. This formation is not based on that prior low of -95, but builds from a conviction that we have been in what Terry Laundry would call a “Post-T Rally”.

“Late rallies can represent the speculative “blow off” that leaves the market vulnerable to the next bear market.”

Looking at the now lengthened descending red line, I would expect a rally here that allows the VO to move up to hit that red line, and then another move lower. Price should follow that path. This seems validated by a glance at the hourly Volume Oscillator Chart:

If you are a member of Avi Gilburt’s elliottwavetrader.net, you may have seen my posts on Monday and Tuesday regarding the progress of this Bear T, and that on the above chart the initial potential for at least a temporary reversal higher would be found when the hourly VO and the $NYUD pass above their zero lines, as they have done since Thursday afternoon. (I added the descending blue line on the $NYUD yesterday). The $NYUD in green shows the actual movement of Up versus Down volume. Above zero, and more money is coming into the market than leaving it. On the other hand, the VO is the MACD of that $NYUD. It shows us the trend of volume.

I’ve mentioned in the past that it’s a positive development when Price continues to move higher while the VO and McOsci retreat. Here we have the opposite development, as Price is overwhelming Up Volume. In my opinion, that should lead to the daily VO hitting the red declining trend line, and then reversing lower again. Should that occur, I imagine the Bear T continues for a month longer on its left side. If I am wrong, the daily VO will continue higher without returning below the zero line after hitting that red line. The answer to this will come shortly.

The daily A/D line has moved below the 50 EMA, and it also turned up over the last 2 days. Watch to see if the A/D line hits the 50 as resistance and fails to pass back above it. The 20 EMA appears to be headed to either a kiss or a cross with that 50 EMA. That chart and others can be found on the Chart page of my website:

Revised Chart Page

You will see there that the BPSPX has broken below the 50 level, which puts it in Bearish mode. There is much room for it to travel before it either hits an extreme low (bullish) or reverses above the lower Keltner band (also bullish). The BPNDX chart is quickly approaching levels not seen since October. The goldminers BPGDM is on the verge of turning lower, but is still well above the upper Keltner band.

I mentioned a few weeks ago that I no longer found a reason to think that SPY or IWM will outperform one another. The ratio between the 2 had reached such a low level (roughly the same as its low last October of .38) that going short IWM as a hedge for SPY was no longer worthwhile. Initially I felt that IWM might start a run higher against SPY, but its failure to pass resistance quickly forced me to reconsider. The Year-To-Date chart seems to agree with that thesis, as does the ratio chart on my site.

As I didn’t intend to post this weekend, I’ll end it here.

Stay careful.