From a ton of different angles, this weakness looks important. Coming into this week, we already
knew that there were some interesting things going on that were worth paying attention to. The
indices had broken out of a three-week sideways range while also moving marginally above April’s
highs. At that time, we stated that this was good action for us, because it would likely either lead to
continued strength or a quick failure. Since then, price has bent back down and given us the biggest
showing of weakness we’ve seen since this up leg began. Meanwhile, bullish sentiment has been on the
rise, the Volatility Index moved to a level where market highs have tended to occur, and the daily
indicators have begun to roll over. Additionally, support levels have been breached. All of these things
are taking place at a point where we know for a fact that an important high could occur. Things
continue to occur that heighten the possibility of a high. For example, the NYSE Bullish Percent
Index has issued a new sell signal. This indicator had been on a buy signal for the entire up leg. Also,
downside price action is beginning to feel impulsive, even if it thus far lacks an apparently impulsive
form. As such, this weakness is absolutely important to the pattern, and no matter what happens next,
a big statement will be made. Keep in mind that when this market gets moving in a direction, it tends
to keep going that way with purpose. As far as we’re concerned, this is enough to do something about
it. It might be a bit proactive without an apparent impulse on the charts, but we’re exiting the long
position we have been in since early September and are assuming a bearish near-term stance. Again,
this may be too early and we could get whipsawed fairly easily. But that’s also the beauty of it. If price
does decide to rally to make this pullback corrective, we’ll know pretty darn quickly that the short
position was misguided and we’ll take our medicine. But if this culmination of sell signals is giving us
good information, there is a ton of reward to be had. That’s exactly the type of scenario we don’t mind
getting involved in.
knew that there were some interesting things going on that were worth paying attention to. The
indices had broken out of a three-week sideways range while also moving marginally above April’s
highs. At that time, we stated that this was good action for us, because it would likely either lead to
continued strength or a quick failure. Since then, price has bent back down and given us the biggest
showing of weakness we’ve seen since this up leg began. Meanwhile, bullish sentiment has been on the
rise, the Volatility Index moved to a level where market highs have tended to occur, and the daily
indicators have begun to roll over. Additionally, support levels have been breached. All of these things
are taking place at a point where we know for a fact that an important high could occur. Things
continue to occur that heighten the possibility of a high. For example, the NYSE Bullish Percent
Index has issued a new sell signal. This indicator had been on a buy signal for the entire up leg. Also,
downside price action is beginning to feel impulsive, even if it thus far lacks an apparently impulsive
form. As such, this weakness is absolutely important to the pattern, and no matter what happens next,
a big statement will be made. Keep in mind that when this market gets moving in a direction, it tends
to keep going that way with purpose. As far as we’re concerned, this is enough to do something about
it. It might be a bit proactive without an apparent impulse on the charts, but we’re exiting the long
position we have been in since early September and are assuming a bearish near-term stance. Again,
this may be too early and we could get whipsawed fairly easily. But that’s also the beauty of it. If price
does decide to rally to make this pullback corrective, we’ll know pretty darn quickly that the short
position was misguided and we’ll take our medicine. But if this culmination of sell signals is giving us
good information, there is a ton of reward to be had. That’s exactly the type of scenario we don’t mind
getting involved in.
