Bearish Evidence

Although many of my medium charts continue to point upward I am starting to sense a growing disturbance in the force which concerns me. Now let me present my case with a caveat: By no means am I suggesting that we’re going to turn tomorrow. I think you all understand at this point that equities have acquired the potential to happily bubble higher on vapor. However, that said – if you are net long at this point then you may want to start tightening your stops a little.

Let’s start with our most bullish chart – the SPX point and figure. Once you remove all the noise it’s rather sobering to see a textbook squeeze off SPX 1650. Our current price objective is at 1940 (wow!) but as this is a long term chart don’t expect to get there in a b-line.

The bulls aren’t really in trouble until about 1705 – let’s make it 1700 to pick a nice round number, which would most likely trigger a high pole reversal warning.

Another long term chart and now it’s getting a bit more bearish. This is the daily Zero which is a proprietary indicator I’ve been using for five years now. Rarely have I seen such a clean bearish divergence and I’m surprised that price has as of yet refused to respond at all.

The short term version (Zero Lite) by the way shows diminishing momentum. That doesn’t always mean we’re going bearish but based on prior observation it opens the door to a surprise move.

My VIX/SPX ratio is also starting to go divergent – apparently market makers have been pricing in a bit more risk since Friday afternoon. May be nothing and I’ll keep an eye on this – if it persists through tomorrow then I’d tighten up a bit more. FYI – nothing interesting yet on my VXV:VIX and VIX:VXO ratio charts…

The UVOL/DVOL chart shows me DVOL slightly leading today despite us pushing to new highs. Not a reversal signal in itself but given the overall context it supports the idea that we may be looking at a short term reversal.

Finally, from a pure price perspective we are slowing down – today we’ll be painting an NR4 (narrowest range in 4 candles) and on the volume profile we’re in total limbo. Not exactly tape where I would want to hold significant long exposure.

Bottom Line: Unfortunately I do not see any bonafide sell signals yet on the equities side, so in terms of short setups we’ve got nothing to go by – just yet. But as soon as I do see price confirmation (e.g. an inside day, RTV-S, or other price pattern) I would most definitely be tempted to jump into some shorts. Remember – top calling is a sure recipe for financial ruin. So be patient but keep your eyes peeled – something doesn’t smell right up here.

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Cheers,