Last night I came home quite late and finally the ISE had updated their latest ISEE chart. So I was up until 2:00am importing the updated data into my Exel chart so that I could start looking for new patterns (the JS chart the ISE offers gives me a headache).
So, as you can see we closed at a record reading of 253 in equities only yesterday. That is quite insane and on the surface you’d expect some kind of reversal soon.
However, I am also looking at the 10-day MA of the equities only ISEE and based on what I’m seeing long term reversals only occur when both a record reading in the raw data and a new high in the 10-day MA coincide. I have taken the liberty to highlight such occurrences on both charts. Whenever we only get a fast spike up we might go down day or two but it does not assure that a big reversal is coming.
Quite apparent from the 10-day MA chart plotted against the SPX above is that we are not even close to new a new high. What’s even worse is careful analysis of what happened during the first half of the recent run up. As you can see the ISEE kept dropping as retail traders were trading the downside, just as proposed in one of my updates a few weeks back. Many retail bears assumed that we were merely correcting and thus started ‘selling the rip’.
What has now ensued is the exact opposite. Retail bears got violently manhandled and squeezed out of their positions (again) as equities continued their short squeeze to the upside (again). Suddenly everyone is going long which might present us with a short term reversals but based on the 10-day MA reading in correlation with some of the other charts I have shared in the past few days I simply do not see the bearish case here. My December puts would love to see me being proven wrong – but thus far I unfortunately am being proven right.
Bottom Line: I am not surprised about today’s tape after yesterday’s 253 reading in the ISEE equities only chart. Based on recent history record readings precede a drop by a few days. I now expect a quick reversal followed by a final ramp up to new 2010 highs, as this third wave continues to sub-divide.
Console yourselves by the fact that life is a bitch and then you die. Feel better now? 😉
UPDATE: You guys ought to take a look at this guy’s take on the ISEE reading – quite fascinating – great work. Hat tip to Royal With Cheese for that link.
I have updated the ISEE chart to reflect the 2007 SPX high. Note that we are several hundred points below that historic reading and we are now pushing into record territory. Now, I agree with him that we probably bust a big higher first before we roll over. That would throw all the remaining bears a huge curve ball – yes, the market is a cruel mistress.
Finally – here is the updated 10-day MA chart correlated with the SPX. Fascinating picture – let’s see if we get this dog all the way up to the 210 mark.