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Wednesday Morning, October 24, 2012 - Short Term Update

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

Bottom Line:

Clouds on the horizon, but in the short term, the market is getting oversold.

Indicator Summary:

  • Bullish: 65%
  • Neutral: 30%
  • Bearish: 5%
  • Aggregate Interpretation: Most of the short term technical indicators I watch are either oversold or quickly approach oversold. The only bearish indicator is current price momentum.

Indicator Snap Shot:

Percentage of Stocks Above their 20 DMA:

Notes: Well within the oversold area with a long shadow on the bottom of the candle, indicating some support. A move out of the "setup" area should be the beginning of a move higher.

NYSE McClellan Oscillator:

Notes: Neutral, while leaning towards the oversold area, we could be basing here.

NYSE Advance - Decline Line:

Notes: Very close to oversold.

NYSE Up - Down Volume:

Notes: The 5 DMA isn't quite as low as the AD line, though it is very close to the last several lows in the indicator that have marked short term lows.

NYSE TICK:

Notes: Neutral territory.

NYSE TRIN:

Notes: With the 5 day drop off effect, this should have no problem breaking the oversold line tomorrow.

Put / Call Ratio:

Notes: The put/call ratio recently registered an optimistic extreme and is slowly creeping up.

Price Action:

SPX: Support / Resistance

Notes: As I mentioned in the comments section of my previous update, a failure to reach the previous highs would be a sign that bulls are losing momentum. The SPX broke down, came back into the channel, and tested the previous high, as well as the light gray line, which is a less obvious, but important line of support/resistance. Why is it important? -Because the market seems to think so; throughout this trend it's reacted to that line multiple times. Who am I to argue?

This decline has take out of the rising trend channel, and we're about 50% of the way through the European "We're going do anything it takes" remarks. It would be the ultimate market irony if QE-Infinity marked the death of the Bernake put...

Dow Industrial:

Notes: The Dow is almost at the first measured move target from a rectangle break down, and is now approaching Fibonacci support.

Dow Transport Index:

Notes: In the previous update I was thinking there could be some weakness in the market because the transport index looked like it was stalling before reaching the previous swing high. The bulls couldn't get the ball as far down field as they did in the last drive. Now, the opposite is occurring, the Transport index has fallen but not nearly as much as the Industrial index. If anything it looks like it's going to try and take another run up.

Notes:

Summary:

Things are a little tricky here, longer/medium term there are some dark clouds on the horizon. Reading of last Friday's COT report, commercial hedgers continue to carry large short positions in most market index futures. The small specs continue to build large long positions, and this is generally a medium term (1-3 months) contrarian indicator. There's been a large increase in overall risk appetite measures, and they are only just now starting to react to declining prices.

That said, in the short term, the broad array of indicators I watch are rapidly approaching oversold.

Currently, no position.

-Bill L.

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