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Thursday, September 13, 2012 - Short Term Update

|Includes:DIA, FXE, IEF, QQQ, SPDR S&P 500 Trust ETF (SPY), TLT, UUP

Bottom Line:

The market is continuing to rally from the last dose of liquidity provided by the ECB. Investors are now looking towards Ben Bernake's remarks on whether he will be providing the next round of "hopium," or QE3. Beneath the surface, there continues to several non confirmations as well as some eyebrow raising volume discrepancies.

Indicator Score:

  • Bullish:0%
  • Neutral: 30%
  • Bearish:70%
  • Aggregate Interpretation: The upward move we had the late last week (and so far continuing this week) has moved most of the indicators from the neutral range to just under an extreme overbought reading. The most interesting thing that I'm seeing right now is that the volume statistics are far underperforming indicators their base solely off price action.

% Above 20 DMA:

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Notes: The percentage of stocks above their 20 DMA continues to be one of the most overbought indicators I follow.

NYSE McClellan Oscillator:

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Notes: The McClellan oscillator has just not been able to recapture the momentum it reached earlier in the rally back in July. I'm not sure what to make of that at the moment, so putting that on the shelf I'll just say that currently its hovering just under an overbought reading.

NASDAQ McClellan Oscillator:

(click to enlarge)Click to enlarge

Notes: Much of what was said about the NYSE McClellan also applies here.

NYSE Advances - Declines:

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Notes: One of the more overbought readings in the last 6 months. The next chart however illustrates the price/issue vs volume discrepancy mentioned in the earlier.

NASDAQ TRIN:

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Notes: This is a very eye brow raising chart to me, the NASDAQ TRIN actually became very oversold last week and even with the huge move has only so far just managed to claw it's way to just "neutral." Since the TRIN is the AD ratio divided by the AD volume ratio, this means that even though more stocks are"advancing vs declining, the stocks that are declining are doing so on much more substantial volume.

Price Action:

A quick look at the Dow indices over the same time period:

Dow Jones Industrial Average:

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Notes: The Dow remains withthin it's upward sloping trend channel. The same can't be said for the other Dow indexes however.

Dow Jones Transportation Index:

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Notes: The transport index peaked several months ago and has since been bouncing inbetween areas of support and resistance. Interestingly enough, the transport index hasn't even been able to breach the "A" peak.

Dow Jones Utilities Index:

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Notes: The utilities index had been outperforming this year, but now appears to be in a down trend. While this could just be the "flight to safety" trade unwinding, both the transports as well as the utilities are not confirming the Dow's up trend.

Summary:

There are non-confirmations abound, an overbought market in terms of advancing issues vs declining issues, and lagging volume. The classical technical interpretation of such an observation is bearish, but this has been a market that has thrown the old rules out the window. The market only cares about one thing right now, is there more easing in the near visible future. I think I've made my opinion pretty well known, but I guess we'll all find out later on today what Ben thinks.

Good luck trading today,

-Bill L.

Stocks: SPY, DIA, QQQ, UUP, FXE, TLT, IEF