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Weekly Trend and Trade Review |
January 15, 2010 |
Trader Talk
The short term momentum oscillators have weakened, though remain positive for now, currently confirming the bullish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains positive, with one high volume distribution day this week. It takes a run of four or five such heavy volume down days to trigger a sell signal from this very important confirming indicator. The leadership profile remains positive, with 330 new 52 week highs, versus 41 new 52 week lows.
The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 17.3, showing little movement on the week, and remains contrarian bearish. We continue to await a corrective plunge that sticks to confirm the wave 2 bear market rally peak is in, and the next down-leg of the secular bear market underway, with the recent push to new highs for the stock indexes opening the door to an extended blow-off run to test the resistance shelf near Dow 12,000 (if the stock indexes can break out to new highs. If not, then watch out below!)
Traditional seasonal trends have us looking for a rally to start the new year. The Presidential cycle suggests a grim 2010 once the current rally stalls and reverses. The Benner-Fibonacci cycle is fast approaching the end of the bullish period, with a crashing bear going forward expected into 2011. The AlphaKing combination cycle sees a rally into early March.
Summary:
The major stock indexes are on the cusp of a massive decision, and one that should deliver the first 20%+ move of 2010. Unfortunately, the technical evidence is mixed as to which direction the eventual next big move will land. On the bull side we have individual stocks acting well, with the stock indexes remaining above all major moving averages, with only one serious down day since 2010 began. On the bear side we have the indexes struggling to break above the 50% retracement line of points lost during the 2007-2009 great bear slide, which often marks the end of counter-trend rallies within on-going larger bear markets. There is also major divergences developing where the Dow Industrials saw new highs recently that every other stock index failed to confirm, as well as very weak action of late in the semiconductor and Dow Transport sectors, which often provide the leadership at major turning points.
The action this week has really done nothing to solve this bull/bear trend/momentum dilemma, as one day wonder plunges like what we saw today (Friday) happen time to time in even the most robust of bull markets. Nor has the action this week removed any of the risk to either the bulls or the bears, and the technical investment elastic remains stretched to the breaking point, with the panic trading of those caught on the wrong side once the eventual victor is declared providing the fuel to propel the stock market in a rapid 20% melt-up or melt-down mega move. The fate of the trend, as was the case many times since the current rally began in March of last year, is held hostage to the presence or absence of a down side follow-through to Fridays weak tape action run on heavy volume. Dow 12,000 versus a crash run developing right here right now are both equally possible, with one of them very probable.
Our research of past technical situations like we current find ourselves us in suggest the optimal exposure is to trade ½ the portfolio in-line with the trend, while keeping the other ½ tucked away in cash, which helps to dampen the volatility seen at blow-offs and blow-off reversals. The markets are closed Monday for Martin Luther King Day, thus our next update will be after the close on Tuesday. Have a great weekend!
401K investors should have ½ of their portfolio invested in a stock index, or aggressive growth, mutual fund, with the other ½ remaining in a money market fund.
The Index portfolio is ½ invested in QQQQ with the other ½ remaining in cash.
Kevin Wilde, Chief Trading Strategist, AlphaKing.com
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