I can’t believe I’m actually saying this but there may actually be a chance for a short term correction in equities. But let’s not get ahead of ourselves, shall we? The current bullish trend isn’t even close to being threatened yet. And although we are seeing bearish divergences on the A/D and other momo indicators equities have proven many times over the past few years that they can stubbornly continue upward for weeks or even months on end. That said, let’s review what we are up against here:
I feel rather conflicted about the price action over the past month and quite frankly that’s exactly how I should feel and thus act accordingly. Just take a look at a daily E-Mini chart and compare the March contract (ESH7) with the current front month (ESM7) and tell me what you see.
In my recent momo update I was quite adamant about the increasing odds of a major market correction. Since then we’ve seen a further increase in spasmodic intra-day gyrations across the board, fueled by a mix of low participation bot trading, heightened emotions and a constant stream of contradicting market rumors (e.g. Deutsche Bank). The trading lair has been in defcon 3 mode for a while now which clearly affects our daily trading activities.
Let me precede this post with a few caveats, just so that we are clear. First up, I’m not really bearish here. As a matter of fact the Zero signal suggests that we’ll see more upside today and we could easily blast higher way above the ES 2000 mark. Second, what I am proposing here is nothing but downside insurance – meaning we are not attempting to nail a top and make fortunes riding the tape to the downside.