Quiet Before The Storm

I have been pretty mum today as I really don’t have much to say. Everyone seems to be waiting for confirmation of their respective belief in the market’s direction – may that be bearish, neutral, or bullish. Personally, I don’t think today is a great day for the bears at all – the SPX gave up a few point intra-day but the buyers are already stepping in and driving the tape higher. So, as of right now all I’m seeing is the quiet before the storm and that might well be to the upside.

Across our four food groups I do see a ratio of 2:1.5 – the DJI and the NDX are leading the market while the SPX is lagging behind – worse performer are the small caps, which undoubtedly gives the bears a bit of hope. But again, I have to play devil’s advocate here and point out that in a period of frivolous sector rotation this probably does not mean too much. Yes, traditional TA has become a lot more difficult these days.

Same story on the trannies and the utilities – a bit of a divergence. Yes, they are limping behind but I wouldn’t really bet money on all that. Well, I am already short this tape, so I guess it doesn’t matter – LOL 🙂

It’s like this my intrepid stainless steel rats – Primary corrective waves can be extremely complex and difficult to navigate, which is why I said last year that I was NOT looking forward to this period. But what’s even worse are the roll over periods. The bulls won’t simply drop everything and run for the hills – there’s much back/forth, head fakes, sideways action, etc. It takes a lot of nerves, patience, and brass balls to survive this kind of tape.

Do I know where we are swinging next? No clue! All I know is that we are not giving up much territory and the Dollar is still not catching a bid. Yes, yes – Dollar bulls are a rare commodity but the past two months taught me that the currency market is easily tampered with and that oversold conditions can sustain for much longer than I had ever hoped.

So, this is kind of period in the tape where I won’t really say much until one of two events have occured:

1. We either run up, make new highs and finally run out of steam.
2. We drop through the recent lows and don’t stop.

As I am typing this the futures are busting higher and it’s not even 3:30pm EDT yet – so I guess we all know where this is going. If you are still short I recommend you either go into cash, or if you have decided to sit out the storm then turn off your profit/loss panel and just take some time off until this tape has resolved itself.

3:20pm EDT: There she goes – ES futures are on a rip again. Quick update on the wave count:

As you can see I’m slowly fading out the bearish count. I don’t see much indication of a reversal today, which is what the bears would have needed to see in order to sustain a short/medium term barish stance. The Zero Lite is flatlining and in the past that often was an early signal of a looming a trend reversal. But lately it’s been mostly a precursor to a surprise rip, thus I don’t want to give it too much credence today.