That was a whole lot of movement for the indices to close flat on the week. And I’m not generalizing
by saying price was flat. Both the SPX and Nasdaq closed within one point of where they began the
week. Now they’re just messing with us.
The indices took a winding path to the flat close. In early-week trade, the indices did something we
hadn’t seen for about 11 weeks by following through on last week’s pullback. But just as soon as the
downside action began to look interesting, the buyers responded with a sizable recovery day on
Thursday. At week’s end, we’re left in a very interesting spot. As discussed in detail on Wednesday,
there is a laundry list of reasons to think that an important high could be in. This includes a failed
breakout attempt at November’s highs, the first new sell signals we’ve seen on many indicators since
this up leg began, broken support, a high level of bullish sentiment, and a low reading on the Volatility
Index. All of these things, in conjunction with the largest (and really the only) pullback we’ve seen in
eleven weeks, was enough for us to exit a ten-week long position and turn bearish. We immediately
stated that it may be an overly aggressive move, but that the risk/reward profile is just too good to
pass up. Of course, all that did was allow the market to gap higher on Thursday morning to
immediately question the viability of this setup for a high. However, at the close of business this week,
the setup for a high is still in place. It wouldn’t take much for price to prove that the pullback off
recent highs is corrective. And if it does, we’ll immediately abandon the short stance because a
corrective pullback would have to be considered bullish. But if the indices can find a way to add on to
the downside, look out below.
by saying price was flat. Both the SPX and Nasdaq closed within one point of where they began the
week. Now they’re just messing with us.
The indices took a winding path to the flat close. In early-week trade, the indices did something we
hadn’t seen for about 11 weeks by following through on last week’s pullback. But just as soon as the
downside action began to look interesting, the buyers responded with a sizable recovery day on
Thursday. At week’s end, we’re left in a very interesting spot. As discussed in detail on Wednesday,
there is a laundry list of reasons to think that an important high could be in. This includes a failed
breakout attempt at November’s highs, the first new sell signals we’ve seen on many indicators since
this up leg began, broken support, a high level of bullish sentiment, and a low reading on the Volatility
Index. All of these things, in conjunction with the largest (and really the only) pullback we’ve seen in
eleven weeks, was enough for us to exit a ten-week long position and turn bearish. We immediately
stated that it may be an overly aggressive move, but that the risk/reward profile is just too good to
pass up. Of course, all that did was allow the market to gap higher on Thursday morning to
immediately question the viability of this setup for a high. However, at the close of business this week,
the setup for a high is still in place. It wouldn’t take much for price to prove that the pullback off
recent highs is corrective. And if it does, we’ll immediately abandon the short stance because a
corrective pullback would have to be considered bullish. But if the indices can find a way to add on to
the downside, look out below.