Equities Taking A Break?

Our Zero participation indicator switched from divergent to mostly negative yesterday as equities seem ready to finally paint a downside correction. Or are they? Equity futures over the past two sessions have been trading increasingly volatile with large signal spikes (in green on the second panel below) occurring first during and then after retesting our current all time high.

Here’s a snapshot of what I’m talking about, you can see realized volatility oscillating in the second panel. To me this formation is starting to look a lot like distribution and that suggests that a deeper retracement may be lurking around the corner. But we can never be sure and besides – calling tops is for pikers, especially during strong trending moves. So instead let’s do something more productive: Play both sides!

As Yogi Berra once said: If you find yourself at a fork in the road – take it! So this is my cunning plan:

• Long here until 2194 with an ISL below 2191.75
• If stopped out wait for a drop and a retest near 2191.75 plus minus a few ticks. Then go short if momentum suggests continuation lower.

Clearly trading this will take some finesses and I don’t suggest large exposure due to whipsaw risk.

On the long side however the TF seems much more collaborative as it’s trading near the lower 100-hour BB as well as above several daily Net-Line Sell Levels (panel on the right). Here my only entry is a long now until about 1326 with an ISL below 1320. I would not take a short position on this one should it get stopped out.

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